By Anne D. Picker, International Economist,Econoday
Monday, October 7, 2002

The equities markets spent another depressing week fraught with worries ranging from the political to the economic. Uncertainties still include a possible war with Iraq and the rising cacophony of earnings warnings. There continues to be an undercurrent of investor distrust regarding analysts and company data as the continuing prosecution of corporate executives grabs the headlines. And now the West coast dock strike, which, if it lasts very long, could impact a lot more than the U.S. economy. On the week, only the Mexican Bolsa rose (1.2 percent). All others followed here were down anywhere from 0.5 percent (Singapore Straits) to 7 percent (the Frankfurt DAX).

Monthly surveys of purchasing managers in manufacturing and services, available around the first of the month, are keenly watched measures of growth in the U.S. and Europe. In Europe, the surveys for September indicated that both EMU services and manufacturing contracted together for the first time in nearly a year, raising the risk of a slump in Europe. The manufacturing index signaled a contraction for the first time in seven months, disappointment magnified by deterioration in the dominant services sector. The contraction in eurozone manufacturing reflected not only a sharp drop in Germany, but also a marked slowdown in sector growth in other countries as well. In contrast, the services sectors in both the United States and Britain showed continued strength. In Britain, manufacturing is also finally showing signs of revival, though U.S. manufacturing slid under the growth/no growth 50 level for the first time in months. Services account for two-thirds of Britain's economy and have kept the economy growing as the manufacturing sector struggles.

Major Japanese companies, especially auto makers, are being forced to suspend production or find other ways to send exports to North America because of the trade dispute that has shut down 29 ports on the U.S. West coast. Other Asia-Pacific industries and countries have been hit by the stoppage as well. Worries are that a prolonged dispute could push East Asia into recession. Some analysts think that if the shutdown lasts for more than one month, East Asia would be pushed into recession. Exports to the U.S. account for 10 percent of gross domestic product in East Asia excluding Japan and had been the main driver of a regional economic recovery this year. Many Japanese companies remain vulnerable because of their reliance on just-in-time production. Most are seeking other ports in Canada or Mexico but they lack the capacity to handle the volume of cargo blocked out of the U.S. The weak recovery seen in many Asian countries is export-led, and a slump in sales overseas to the U.S., by far the biggest market, could cause serious damage.

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