Any lingering doubts about the trend towards recession were swept away last night as the world’s vehicle makers announced their April results. Falling off a cliff would sum it up. General Motors sales fell 23%, Ford 19%, and Chrysler nearly 30%. And to make matters worse for the manufacturers, the effect of spiralling fuel prices has shifted sales from high-profit trucks and gas-guzzling SUVs to more fuel-efficient but less profitable models. The idea that a US recession wouldn’t affect the rest of the world also took a beating as Toyota dropped 5% and Nissan 2%.
The latest figures on US manufacturing confirm that the American economy overall is contracting, with employment dropping sharply to its lowest level since May 2003. Despite the distribution of $110 billion in tax rebates intended as a stimulation package, these figures are certain to deepen and accelerate the impact on US consumers, already hit by house repossessions. These jumped by 23% in the first quarter and are more than double the level of the year before. One in every 194 households received a notice of default, auction sale or bank repossession in January, February and March. Rising fuel and food prices are also taking their toll on household spending.
To say that these are unprecedented times is an understatement. Last year GM was the 5th largest of the global corporations ranked by revenue. It made a loss of nearly $2 billion on sales of $207.3 billion. Toyota was the 6th and DaimlerChrysler the 8th largest. Ford was 12th in the list. It made a massive loss of $12.6 billion on sales of $160.1 billion. So the impact on of a slump in their sales will be felt throughout the global economy.
For the UK, latest projections from the National Institute of Economic and Social Research show consumer spending growth falling from 3.1% last year to just 1.2% - the slowest rate since 1992 when Britain was emerging from recession. "The UK economy has perhaps reached its most precarious position in over a decade because of global financial market developments," NIESR says. "Private consumption will slow to a crawl this year and next."
Before the car makers’ shock results, commentators had been playing alphabet soup with the economy trying to guess whether the recession will be brief, giving a V-shaped curve to growth, a double-dip W, a longer U-shape, or (though the BBC ignored it on Newsnight) a long L. All of these options assume that there’s a bottom. In reality, the global capitalist economy is headed for the biggest wave of destruction of productive capacity in history.
This prospect has reinforced the loss of confidence in governments to deal with basic questions, let alone the economic crisis, as seen in New Labour’s disastrous local election results. Avoiding the horrific consequences of a prolonged recession leading to slump requires bold political action well beyond the capacity of parties like New Labour. The objective has to be to end the anarchy of the market and capitalist production for profit in favour of a sustainable, co-operative system that is motivated by meeting people's needs.