Downbeat economic news expected on Election Day

[November 04, 2008]  WASHINGTON (AP) -- After months rife with uncertainty and unprecedented events that have roiled and reshaped Wall Street, at least one major unknown should be cleared up Tuesday -- who will be the country's next president.

Investors are likely to focused more on the presidential vote -- and what the winner will do to deal with the nation's biggest financial crisis since the 1930s -- than the latest batch of downbeat economic data due out Tuesday.

The election's outcome could significantly affect a range of industries, including oil and gas companies, automakers, pharmaceuticals, and financial services firms. Those sectors and others could find themselves subjected to new taxes or regulations next year -- depending on who wins the White House.

The government, raising cash to pay for the array of financial rescue packages, said Monday it plans to borrow $550 billion in the last three months of this year. Treasury Department officials also projected the government would need to borrow $368 billion more in the first quarter of 2009, meaning the next president will confront an ocean of red ink.

The nonpartisan Committee for a Responsible Budget estimates all the government economic and rescue initiatives, starting with the $168 billion in stimulus checks issued earlier this year, total even more -- an eye-popping $2.6 trillion.

An economic report Tuesday will only add fresh detail to the economy's bleak picture.

Wall Street economists expect the Commerce Department to report that September factory orders declined for the second straight month, as consumers and businesses cut spending in the wake of the economic slowdown.

And the day before voters set out to elect the 44th president, economic reports brought more bad news Monday.

The widely watched Institute of Supply Management gauge of manufacturing activity plunged in October to its lowest level since the country's last deep recession, the 1981-82 downturn.

And automakers reported terrible October sales figures. Sales sank 45 percent at General Motors Corp., 30 percent at Ford Motor Co., 25 percent at Honda Motor Co. and 23 percent at Toyota Motor Corp.

The Commerce Department's report on construction spending Monday showed a 0.3 percent decline in September, the third drop in the past four months.

"We are now deep in the belly of the recession beast," said Bernard Baumohl, managing director of the Economic Outlook Group.

The government reported last week that the overall economy, as measured by the gross domestic product, shrank at an annual rate of 0.3 percent in the July-to-September quarter. Two straight quarters of lower GDP generally mean a recession, and many economists expect the fourth quarter to be worse than the third.

Besides the borrowing numbers, Treasury released estimates by major Wall Street bond firms projecting that total borrowing for this budget year, which began Oct. 1, will total $1.4 trillion, nearly double the previous record.

Major Wall Street firms were equally pessimistic about the size of the federal deficit this year. They projected it will hit $988 billion for the current budget year, more than twice the record. In July, the administration projected a deficit for this year of $482 billion, but that was before the financial crisis erupted in September.

Supporters of the government rescue packages argue that the ultimate cost to taxpayers should end up being a lot smaller, partly because the Federal Reserve is extending loans to banks that should be paid back.

And in the case of the $700 billion rescue package, the government is buying assets -- either bank stock or distressed mortgage-backed assets -- that it hopes will rebound in value once the crisis has passed.

But the government still needs to borrow massive amounts to buy the assets, an effort that has driven up borrowing costs to levels never before contemplated.

Meanwhile, the Bush administration is moving to get parts of the rescue package up and running. Two New York law firms -- Hughes, Hubbard & Reed and Squire Sanders & Dempsey -- were announced to process the mountains of paperwork that banks will be required to file. That will allow the government to monitor the operation of the $250 billion program to buy bank stock. Each law firm will receive up to $5.5 million for its work through April 28.

The law firms will be responsible for monitoring the filings of up to 1,800 eligible banks with publicly traded stock. In addition, 6,000 other banks whose stock is not publicly traded can apply for government purchases of their stock. The government distributed the first $125 billion to nine of the nation's biggest banks last week.

A separate report Monday from the Fed showed banks tightened standards on all sorts of loans, from home mortgages to credit cards and business loans in early October, compared with three months ago, showing the credit squeeze had yet to let up.

[Associated Press; By MARTIN CRUTSINGER]

Associated Press writers Jennifer Loven in Washington and Ellen Simon in New York contributed to this report.

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