By William Patalon III
Executive Editor
Money Morning/The Money Map Report

China unveiled yesterday (Sunday) what it described as a “massive” economic stimulus package – a planned capital infusion of $586 billion that it plans to use to reverse its slowing growth, to loosen credit and to offset slowing global growth by stoking domestic demand.

Xinhua, China's state-run news agency, said yesterday that the stimulus package represents “a shift long advocated by analysts of the Chinese economy and by some within the government. It comes amid indications that economic growth, exports and various industries are slowing.”

The decision was announced yesterday by the State Council after Premier Wen Jiabao presided over an executive meeting Wednesday. China reported in late October that its economy grew at a less-than-expected rate of 9% in the third quarter – the fifth straight quarter than growth has slowed, MarketWatch.com reported.

"As the global outlook deteriorates, we expect Chinese macro policy to turn increasingly aggressive," Merrill Lynch & Co. Inc. (MER) economists T.J. Bond and Ting Lu wrote in a research report Friday. “This is a key theme for China and indeed, the entire Asian region.”

China becomes the latest major country to announce a stimulus package. Governments have been injecting billions of dollars into their economies, as central banks around the world slash interest rates, all in the hope of avoiding a whopper global recession. Just last week, researchers at the International Monetary Fund (IMF) said that world growth would slow to a tepid 2.2% next year, down from the 3.7% growth estimated for this year. The IMF forecast for China slashed the growth rate down to 8.5% next year, down from an earlier projection of 9.3%.

Reports are circulating that the U.S. government may be considering another infusion of its own. The urgency could escalate this week after retailers take center stage and announce their third-quarter earnings. Macy’s Inc. (M), Nordstrom’s Inc. (JWN), Abercrombie & Fitch Co. (ANF) and Wal-Mart Stores Inc. (WMT) all are expected to announce quarterly results.

The retail sales data for October will be released on Friday, though the recent weak sales numbers and earnings announcements should have provided more than fair foreshadowing of the actual monthly results.

Given that consumer spending accounts for 70% of the U.S. economy’s health, don’t anticipate great numbers. And don’t assume these are the worst we’ll see.

Market Matters

With traders predicting a victory by Democrat Barack Obama, the major markets jumped by more than 3% on election day and the Dow Jones Industrial Average closed at a four-week high. International stocks also climbed in anticipation of real “change” coming to the White House.

The euphoria was short-lived, however, as the economic realities returned “the morning after.”  Domestic indexes plunged 10% over the next two sessions in volatile trading.  Cisco Systems Inc. (CSCO), Time Warner Inc. (TWX), and News Corp. (NWS) became the latest companies to disappoint on quarterly earnings.  Likewise, General Motors Corp. (GM) and Ford Motor Co. (F) announced larger than expected losses and dismal sales results for October as execs presented a dire picture of the entire industry.  Circuit City Stores Inc. (CC) started closing stores; Goldman Sachs Group (GS) began handing out pink slips; JP Morgan Chase & Co. (JPM) announced plans to modify mortgage loans for delinquent borrowers.

Weak economic releases (see below) prompted oil prices to plummet again on enhanced recession concerns; the price of gasoline pushed below $2.40 per gallon – reaching its lowest level since early 2007.  For now, inflation does not appear to be a problem.  As for the President-elect, no one ever said it would be easy.  (Then again, optimists note, many of the same fears we face now were present back in 1992 when a relatively unknown Democratic president was elected and his party also controlled Congress. The Dow soared more than 200% during the President Bill Clinton years, the strongest performance in the post-World War II era. We also ended with a budget surplus – but that, at least, may be too much to ask for).

Weekly Market Data              

Economic Matters

A hectic week on the economic calendar unfortunately brought little for investors (and the President-elect) to cheer about. The manufacturing sector appears to be in far worse shape than previously thought as the ISM index plunged to its lowest level in 26 years.  Two days later, that same Institute for Supply Management reported that the services sector was weakening, as well. Retailers remained very apprehensive about the holidays and the poorest October sales results since 1969 did nothing to relieve those fears.  JC Penney Co. Inc. (JCP) and Nordstrom’s reduced their earnings projections and only discounter Wal-Mart seemed to benefit from the uncertain times. 

As for the highly anticipated unemployment releases, we found that during the month of October, the country shed another 240,000 jobs, its tenth straight month of labor contraction, bringing the year-to-date total losses to 1.2 million. Even worse, the losses appear to be accelerating.

Last month’s unemployment rate skyrocketed to 6.5% (from 6.1% in September) and now stands at its highest level since March 1994. Additionally, recruiting firm Challenger Gray & Christmas reported soaring layoffs (+79%) over the past 12-months, and payroll provider Automated Data Processing (ADP) revealed that the private sector suffered its largest monthly job contraction since December 2001. The dismal labor picture all but confirms a second consecutive quarter of negative growth (GDP), which translates into full-fledged recession. When individuals worry about their jobs, they don’t spend. Retailers suffer, manufacturers suffer, and the overall economy suffers.

We’re already seeing all of this – and there’s more to come.

Overseas, the world’s Central Banks followed in the Federal Reserves’ footsteps by dropping their key lending rates in attempts to jumpstart their respective economies. As Money Morning reported, the ECB (European Central Bank) cut its key interest rate by half a percentage point to 3.25%, while the Bank of England took surprising action by reducing its rate by one-and-a-half percentage points to take it down to 3.0% - an attempt at countering the impact of its rapidly falling housing prices and the ongoing credit crisis. 

Weekly Economic Calendar

News and Related Story Links:

• MarketWatch.com:
  China unveils stimulus package as growth slows.

• Money Morning News:
  ECB Cuts Interest Rate by Half Point as Recession Grips Eurozone.

• Bloomberg News:
  Macy's, Target Monthly Sales Fall, Wal-Mart Gains.