Bush, Sarkozy to meet as signs of recession mount

Reuters NEW YORK

EVIDENCE piled up on Friday that the world is slipping into recession but the White House played down expectations for a weekend meeting between lame-duck US President George W Bush and European Union leaders. US consumer confidence and new-home construction plummeted in recent weeks in further signs of economic slowdown. US stock indices ended down on Friday despite better-than-expected earnings in the technology sector.
    Bush, who leaves office in January after a November 4 election, said on Friday intervention by governments in the US and Europe in the past week needed time to work. The US President played down expectations for Saturday's meeting with French President Nicolas Sarkozy and European Commission President Jose Manuel Barroso. The Europeans have said they want the meeting to pave the way for talks on an overhaul of the global financial regulatory system.
    Interbank lending rates fell this week for the first time since July providing some hope that the worst of the global banking crisis may have passed, but stockmarkets around the world remained volatile, weighed down by recession fears.
    European shares ended higher and oil rose $2 a barrel, but a rise in the US dollar was a sign of investors seeking safety. Among benchmark US stock indexes the Dow Jones Industrial Average ended down 127 points or 1.41% after trading in a 560 point range. The S&P500 index ended down 0.62%.
    Adding to the gloom about the US economy, a senior Federal Reserve policy maker said the jump in the US jobless rate suggests the economy will likely slip into recession. Bush said he would continue "close consultations" with European leaders at the meeting on Saturday afternoon. "Our European partners are taking bold steps. They show the world that we're determined to overcome this challenge together. And they have the full support of the US," Bush said in a speech at the US Chamber of Commerce.
    But he did not specifically mention calls by European leaders to reform the financial system that the world has been operating under since 1944, and White House spokeswoman Dana Perino said the US focus was on the immediate crisis. "I think the most important thing we can do is make sure that we stop the bleeding here before we move on to the next project," she told reporters.
    Barroso and Sarkozy met Canadian Prime Minister Stephen Harper on Friday and agreed on the need for an international summit before the end of the year. Sarkozy said it should include China, India and other non-G8 countries. Writing in the Washington Post on Friday, British Prime Minister Gordon Brown said post-World War II financial institutions were out of date. Bush's ability to act on such longer-term reforms is hamstrung by the fact that he will leave office in January.
    A Reuters/University of Michigan survey said US consumer confidence in October suffered its steepest monthly drop since the survey began in 1952. Earlier a US government report showed construction starts on new homes fell to their slowest pace since January 1991. "Confidence is collapsing so that's not good even as you have gas prices falling," said Doug Smith, chief economist for the Americas at Standard Chartered in New York. "People are seeing what's happening to their 401ks, stocks and home prices. It's just awful."
    Charles Evans, president of the Federal Reserve Bank of Chicago, said the US economy was likely to be "very sluggish" well into 2009, but actions to restore liquidity to financial markets would kick in over time.
    Evans said the current spike in the US jobless rates was a likely precursor to recession. "Unemployment rarely goes up this much without a recession following," he told reporters.