There has been mixed US economic news this week, with Wall street dipping, and Detroit planning its way out of bankruptcy. Wall street put the general market dip down to obligations to sell options by large institutions, which took the heat out of the market. However, the S&P 500 was nearing record highs as leading US companies continue to do well. One key indicator on the US economy is home sales, which have been in a slump due to the consistent bad weather, and lack of availability in key growth areas. This slump has not pulled the stock markets down as confidence there is high and strong growth is expected through the summer.
Detroit has come up with a plan to solve the biggest municipal bankruptcy in US history. The plan is based on the reduction of pensions for non-uniformed staff by 30 percent, and uniformed staff by 10 percent. There will also be a restructuring of debt, where the city will only pay $1 on every $5 it owes to bondholders. The local union leaders are fighting the cuts as they claim this will leave thousands of seniors essentially without health coverage, and with big chunks of their earned pensions taken away. Some pensioners will be left living on less the $12,000 per year, even after city careers that lasted more than thirty years. The hope of many is that these proposals will be reversed in the courts. The constitution of Michigan actually forbids these cuts, but the clause has been ruled as no protection given the current scale of the problem. A quarter of Detroit’s citizens have fled to other parts of the US economy since 2000.
The United Auto Workers’ Union is also feeling the pinch in Detroit. Their membership and dues have dropped heavily, even against year 2000 numbers, and they have suffered a major political defeat as well. In Tennessee the union was rejected by workers at a VW factory, and this is part of a bigger trend that is putting pressure on manufacturers as well as the unions. The big car makers in Detroit, Ford, Chrysler, and GM, mainstays of the US economy, are finding increased competition from foreign car manufacturers who have invested heavily in the US south. These companies, primarily VW, Nissan, and Hyundai, are seen as worker friendly, especially when worker conditions in their home countries are considered. As a result UAW is finding it difficult to grow, even as Ford, Chrysler, and GM hired thousand of new employees as the US economy grows again. Some have even suggested that UAW may be taken over by other unions, which is move that Detroit’s big three would probably want to avoid.
Elsewhere the US economy certainly looked on the mend with companies like Hewlett-Packard raising their projected profit forecasts for the year, and pharmaceutical companies hitting record highs as positive news about new treatments were welcomed by the markets. This leads to speculation that the FED will soon start to reign in its strategy of bond buying, especially as US unemployment figures suggest the US economy is genuinely on the way up by international measures.
By Andrew Willig