The world may breathe a little easier this week, but no one is declaring that the rescue package approved by the United States House of Representatives on Friday, and signed into law by President Bush, will end the crisis in the American economy. In the circumstance, we, too, have to be vigilant.

At best, the US$700 billion that Congress will allow the Treasury Department to spend to buy up dud loans may stabilise the credit problem and ease that sense, so patently present in the US this past week, that the sky was about to fall. And perhaps it was.

Credit concerns

But it is the evidence that began to emerge from America's main streets that is concentrating minds. Evidence that, whoever may be at fault for the corporate meltdown, small- and medium-size firms - the backbone of America's economy - have begun to feel the credit pinch. If they cannot borrow, the next step is to cut jobs.

Some of these concerns have begun to seep through to the formal data. While America's unemployment remained at a credible 6.1 per cent, figures released at the weekend point to a worrying trend.

In September, according to Labour Department statistics, 159,000 jobs were cut in the US economy, the highest in five years. Moreover, factory orders plunged four per cent in August, reinforcing the recent signal of weak order books.

The figures do not stand in isolation. They are precursors to a larger, not yet fully unfolded, story. It will be told in the next set of statistics on unemployment.

This is where it begins to get particularly dicey for Jamaica. There is hardly a credible economist who does not believe that the US is heading into a full-blown recession. A weak US economy will cause a slowdown, if not sputtering, of global performance.

Psychological battering

The evidence has begun to emerge with the dire warning from the United Kingdom's Chancellor of the Exchequer, Alistair Darling, of the outlook for the UK and the stumbling of banks across Europe.

China will continue to grow, but with their American order books not swelled as in the past, its gross domestic product expansion will not be as robust as in the recent past.

But even assuming that America escapes the worst, the fact is that its markets will have taken a psychological battering.

The average American will almost certainly feel poorer today than he/she did a week, a fortnight, or a month ago. The instinct to splurge will be lessened.

Likely impact

A foreign holiday will be on the back burner, which is bad for Jamaica, nearly 70 per cent of whose tourists come from the United States.

We can also rest assured that more than a handful of Jamaicans will have been among those 159,000 people whose jobs were shed in September. They will have less money to send home, to contribute to the nearly US$2 billion in remittances that Jamaica received last year.

Indeed, the Inter-American Development Bank has warned that remittances from the US to the hemisphere, adjusted for inflation, will actually decline by 1.7 per cent.

Jamaica has an interest in the stability package working. Fundamentally, however, America's debacle underlines the need for us to put our economic house in order.

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