U.S. Economic/Financial News

Homebuilders Feel Sting of Housing Bubble Collapse

KB Home, the sixth-largest homebuilder in the U.S., announced a 34% drop in its projected third-quarter earnings, citing slowing of placed orders, increased order cancellations, and higher costs. Beazer Homes USA and Lennar Corp also are revising their outlooks downward. Homebuilding companies led the recent stock-market slump, with the largest U.S. mortgage provider, Countrywide Financial Corp., leading the charge.

Cost-Cutting Boeing Exec Named Bill Ford's Successor

Ford Motor Co. named Boeing Co. executive vice president Alan Mulally, as its new president and CEO, replacing Bill Ford. Ford remains as executive chairman of the automaker. Mulally, who was also elected to Ford's board of directors, had been in charge of Boeing's commercial airplanes division.

"Our turnaround effort required the additional skills of an executive who has led a major manufacturing enterprise through such challenges before," Bill Ford wrote in an e-mail to Ford employees on Sept. 5.

In December 1998, Mulally blamed the massive layoffs at Boeing—48,000 jobs (20% of its workforce)—on the economic crisis in Asia. Then, in late September 2001, following the attacks on the World Trade Center and Pentagon, Mulally announced that Boeing was shedding as many as 30,000 jobs, eliminating 20%-30% of the employees at each commercial jet plant.

No word yet on whether the Ford family, which owns 40% of Ford stock, has made a deal to give up any of its shares as part of the ouster of Bill Ford as CEO.

Ford Shakeup: 'Creative Destruction'?

In an editorial Sept. 7 on the shakeup and recent tribulations at Ford Motor Co., with the replacement of Bill Ford by Boeing's Mulally as CEO, the Wall Street Journal invoked economist Joseph Schumpeter's 1942 idea of "creative destruction" as the driving force for capitalism, characterizing it as the disruption and churn of a vibrant and healthy economy. The alternative is the stagnation of Western Europe's social-market democracies, where things go slowly: no new jobs, higher unemployment rates, but little "employment churn rates." In our country, says the Journal, this situation is found in the public sector.

Will 'Mortgage Moms' Replace Soccer Moms in 2006 Elections?

According to a study by the Federal Reserve Board, reported by the Washington Post Sept. 5, the ratio of financial obligations—primarily mortgage and consumer debt—to disposable personal income, rose to a modern record of 18.7% earlier this year. The amount of mortgage debt alone has more than doubled since 2000, to nearly $9 trillion. And in July, for the 16th consecutive month, consumers in the aggregate spent all of their disposable income and dipped into savings or borrowed to finance the things they bought.

Among the most exposed are those who took out adjustable rate mortgages (ARMs). Next year, $1 trillion worth of ARMs—about 11% of all outstanding mortgage debt—is scheduled to readjust to a higher interest rate for the first time. This will come after more than $400 billion of readjustments this year. That means millions of homeowners will either have to refinance or shoulder an increase of as much as 25% in their monthly payments.

Senators File Farm Disaster-Relief Bill; White House Opposes

On Sept. 6, a bipartisan $6 billion farm disaster-relief bill was filed in the Senate by 12 members, led by Kent Conrad (D-ND), and Norm Coleman (R-Minn). It includes $4 billion to deal with the devastating impact of the High Plains drought, and covers both 2005 and 2006. Conrad said they intend to attach this to some remaining legislation in the Senate. Their previous $4 billion farm disaster-relief measure, passed by the Senate, and intended for inclusion in the Defense Supplemental bill, was quashed in June by a House/Senate conference, at the demand of Cheney/Bush. On Sept. 6, White House spokesman Alex Conant said that the administration still opposes the farm measure, cavilling that Secretary of Agriculture Mike Johanns will wait until after the fall harvest to see if any such action is warranted. Backing the Senate farm relief bill are: Republicans Coleman and Jim Talent (Mo); and Democrats Conrad and Dorgan (ND), Nelson (Neb), Johnson (SD), Salazar (Colo), Baucus (Mont), Cantwell (Wash), Durbin and Obama (Ill), and Dayton (Minn).

U.S. Faces TB Threat; Breakdown in Health Infrastructure

At a just-concluded meeting in Johannesburg, South Africa, health experts warned of the spread of a deadly form of TB, XDR-TB, which is resistant to all known treatments, They are calling for "dramatic improvements in tuberculosis control." (See this week's Africa Digest for details.)

Meanwhile, disease containment infrastructure is disappearing. Three U.S. examples:

Minnesota: A recent Centers for Disease Control and Prevention (CDC) study of TB in a Minnesota community of recent immigrants from Somalia, where levels of TB were much higher than in the rest of the population (30% of Minnesota's TB cases were among Somalis), and many long-standing cases exhibited extra-pulmonary manifestations. This reflects that more and more people are migrating without screening and treatment for TB and other such contagious diseases.

Washington, D.C.: The shutdown of D.C. General Hospital in 2001 closed down one of the premier TB treatment units, including pediatric TB, on the East Coast. It has not been replaced.

Virginia: In Loudoun County, the health department has ceased requiring an annual TB skin test for all school system workers, switching instead to a questionnaire.