Few Good Scenarios in View as Crisis Spreads
The Wall Street turmoil is shaking an already-weakened U.S. economy and could hit households and businesses in the form of fewer loans and higher interest rates in the months ahead -- in turn sending unemployment higher and corporate profits lower.</br></br>Economic data released Thursday show the stress in the economy leading up to the crisis and hint at how it may have gotten worse since. Demand for manufactured goods fell sharply in August as new- home sales slid to their lowest monthly level in 17 years. And in the week ended Sept. 20, new unemployment filings hit the highest level since just after the 9/11 terrorist attacks.</br></br>U.S. leaders hope the government's massive interventions, plus plans for a big bailout now being negotiated, will soften the blow. The economy also is running on a reassuring quarter-century path of mostly sustained growth that could reassert itself.</br></br>But ripple effects from a worsening credit crunch are already making their way from Wall Street to Main Street. General Electric Co. kicked off what could be a parade of profit warnings on Thursday. Many companies have seen their borrowing costs rise in the short-term commercial-paper market.</br></br>History, and a close look at recent data, suggest the economy could travel any of four possible routes through the financial crunch. The most likely scenario is a recession marked by a protracted period of tight credit. But three other scenarios -- a dangerous run on the dollar, Japan-style deflation or surprising economic resilience -- are also within the realm of possibility.