Everyone is featuring gloom this morning. The Page One headline in the Wall Street Journal sums it up: "World Economy Shows New Strain." Europe's economy, notes the paper, is now officially contracting, "the first time since the early 1990s that GDP has fallen overall in the 15 countries that use the euro." Japan, too, is stalling: "On Wednesday Japan reported its economy contracted at an annual rate of 2.4% in the April-June quarter, the largest decline in seven years."
While that fate has yet to befall the United States, we've got our own problems: "Consumer-price inflation hit a 17-year high in July, rising 5.6% from a year earlier." CNN Money puts that history into context: "The July increase matched the 5.6% level in January 1991, when the Persian Gulf War was raging." The New York Times takes a more personal angle, saying that yesterday's consumer price report "offered quantitative proof of what Americans have been feeling for months: almost everything costs more, even as they have less money to pay for it." The Financial Times argues that America's inflationary spike highlights the "dilemma facing the Federal Reserve as its policymakers weigh the risks of the rising cost of living against increasing unemployment, a weak consumer and stress in the financial services industry."
The NYT business section even casts a pall on the recent past, with an in-depth examination of how bank advertising persuaded millions of Americans to take out home-equity loans, which, as the paper puts it, "used to be known as second mortgages [and] were considered the borrowing of last resort, to be avoided by all but people in dire financial straits." The value of those loans has risen from $1 billion in the 1980s to $1 trillion today, the paper reports, and "hundreds of thousands are delinquent, owing banks more than $10 billion on these loans, often on top of their first mortgages."
For all that gloom, it's with some surprise that the press reports Thursday's decent stock-market gains. "U.S. and European equity markets staged a rebound after two days of losses as oil prices retreated," reports the FT. Part of the market's relative optimism stems from the not-terrible earnings announcement from Wal-Mart, widely considered a bellwether for this shaky economy. Apparently, a combination of general inflation and economic-stimulus checks has Americans flocking to Wal-Mart. With consumers highly concerned about prices, "Wal-Mart on Thursday announced record earnings for the three months ending in July and raised its full-year earnings forecast to $3.43 to $3.50 a share, up from $3.30 to $3.43," said the NYT. The Times puts Wal-Mart's thrift focus in the context of back-to-school promotions featuring "1930s prices for pens, glue, notebooks and even T-shirts."
With the Russia-Georgia conflict now a week old, the NYT today publishes the most probing examination to date of how the conflict might hit Wall Street and the global financial community. Noting that the Russian stock market has dipped 25 percent in the last two months, the Times reports that investment in Russian companies has been shrinking: "[H]alfway through this month, there have only been eight transactions raising debt for companies in Russia, compared with 37 in July." The British press is especially focused on Russia's expulsion of Robert Dudley, who ran BP's joint venture in Russia until last month, when his work permit was not renewed. The BBC notes that BP is planning an appeal, but Russia does not seem to be in a generous mood these days.
American Airlines is the subject of two big stories today. It has been slapped with a $7.1 million fine "for allegedly violating employee drug- and alcohol-testing procedures and knowingly flying airplanes that broke maintenance regulations," according to the WSJ. The proposed fine is one of the largest ever levied by the Federal Aviation Administration, apparently because the airline continued to use a plane late last year even after the FAA warned that it had a malfunctioning automatic pilot. Meanwhile, American, British Airways, and Iberia have announced that they will work together on trans-Atlantic flights while still operating as separate companies. The arrangement requires special approval from both U.S. and European Union regulators, which it seems likely to get, based on similar approvals in the past. As the Economist summarizes it: "If the regulators approve the new deal, the group's combined reach—443 destinations in 106 countries—would be daunting for rivals, although it would still have a smaller share of the transatlantic market than the Air France/KLM/Delta/Northwest alliance."