WASHINGTON (AFP) — The Thanksgiving holiday gives Americans a break from stressed stock markets, surging home foreclosures and an ailing dollar, but celebrations will be muted by fears of an economic slowdown.
Anxious investors have more than enough to chew on, including rocketing oil prices, as they sit down to a traditional plate of turkey and cranberry sauce on Thursday.
Some analysts say the holiday will provide little relief.
"The price Americans pay for turkey as well as Thanksgiving dinner as a whole will be higher in large measure to significant increases in energy, transportation and processing costs," said John Urbanchuk, a director of LECG, a California consulting firm.
The world's biggest economy grew at a robust 3.9 percent clip in the third quarter despite the housing downturn and a related credit crunch, but the Federal Reserve said Tuesday that growth is likely to slow in 2008 to between 1.8 and 2.5 percent.
The Fed's outlook contributed to heavy falls on Wall Street Wednesday and stoked expectations that the Fed will be forced to cut interest rates again at a December 11 meeting.
The Fed funds short-term interest rate is presently anchored at 4.50 percent.
The central bank trimmed borrowing costs in September and October in a bid to underpin economic momentum, but concerns are growing that consumers may cut back their spending.
"So far, consumers have done an amazing job of ignoring high oil prices, not to mention falling home prices," said Standard and Poor's chief economist David Wyss.
"But with gasoline back to more than three dollars per gallon and the winter heating season approaching, will consumers finally flinch?" Wyss said as oil prices threatened to strike 100 dollars.
New York's leading oil futures contract, light sweet crude for January delivery, struck a record 99.29 dollars a barrel before retreating.
Consumer spending is vital to the American economy, it accounts for 70 percent of economic growth, and economists are keeping their fingers crossed that Americans will splurge during the critical pre-Christmas shopping run.
The housing malaise, which started in 2006, has not significantly depressed consumer spending so far, but consumers are now being buffeted by tightening credit, rising oil prices and stock losses.
Investors holding financial stocks have seen their shares ravaged of late.
Citigroup's shares closed down over two percent at 30.73 dollars Wednesday, but its stock has fallen heavily from over 46 dollars since it revealed multibillion dollar writeoffs largely tied to soured mortgage investments in mid-October.
Merrill Lynch's stock, which is hovering around 51 dollars, has also lost ground after it announced writeoffs of 7.9 billion dollars last month largely due to losses tied to mortgage securities.
The Dow Jones Industrial Average has fallen over 1,200 points from record highs struck in early October.
The financial woes have forced banks to tighten their lending standards which has put a brake on big takeover deals by private equity funds and made it harder for companies to borrow money.
US Treasury Secretary Henry Paulson added to the Thanksgiving gloom in an interview with the Wall Street Journal.
Paulson warned that the volume of likely home loan defaults "will be significantly bigger" in 2008 than this year, partly as hundreds of thousands of mortgages reset to higher interest rates.
The Treasury chief's comments added to Wall Street's downbeat mood which has also been depressed by the falling dollar.
The euro stuck an all-time high of 1.4855 dollars Wednesday. The dollar has weakened markedly against other major currencies this year making it more expensive for Americans to buy overseas goods.
There is a silver lining to the dollar's drop, however: US exporters say they are benefiting from brisker business.
Copyright © 2009 AFP. All rights reserved. More »
