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US economy heads towards recession -

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LISA MILLAR: It's unclear whether the vote will have any impact in stopping the American economy's
slide into recession.

Fresh data out today shows manufacturing at its lowest level since the last US recession in 2001,
as the credit crisis quickly spreads beyond Wall Street to Main Street.

Another report is showing more Americans are losing their jobs, while car and truck sales have
tumbled as consumers discover finance is harder to come by.

Americans are also being warned to expect another significant share market plunge, even if the
$700-billion bailout is finally approved.

Here's our Business editor Peter Ryan.

PETER RYAN: Across America, there's now little doubt that the worsening financial crisis is no
longer a problem for just Wall Street and Capitol Hill.

An almost daily spike in fear and suspicion means the cost of sourcing money is in a spiral, and
banks are hoarding their cash unless borrowers pay a hefty premium for risk.

So when banks stop lending to each other, consumers have little chance of easy credit and that goes
to a key part of the American psyche - like buying a car.

DENNY FITZPATRICK: When credit gets tight and we are not able to get people finance, we are not
able to sell those cars. Those cars are sitting in the lots.

PETER RYAN: Denny Fitzpatrick and his family have run a Chevy dealership in California for the best
part of 60 years.

His business relies on sourcing cheap finance for potential customers to seal a deal.

But with tighter credit controls and higher rates in return for risk, customers are being turned
away and sales are diving.

DENNY FITZPATRICK: So as finance companies have a tough time borrowing money in the market. You
know, dealers are feeling that because the interest rate they are charged is going up.

PETER RYAN: With so many buyers scared off, sales for Ford, Toyota and Nissan have tumbled by about
a third over the past year.

Industry-wide sales have fallen for 11 months in a row - the longest slide in 17 years.

And with the worst housing slump since the Great Depression, housing loans are not surprisingly
harder to negotiate.

GUY CECALA: You need to have next to perfect credit to get a standardised loan. They want more in
terms of down payments. It is much hard to get a loan now than it was even a year ago.

PETER RYAN: As a result, mortgage applications fell by more than 20 per cent last week alone,
according to Guy Cecala of the industry magazine Inside Mortgage Finance.

GUY CECALA: All the signs are pointing to less mortgage activity and most of it is attributable
just to a tightening of credit and fear and concern among home buyers about whether it is time to
buy a home or even refinance a mortgage.

PETER RYAN: But the pain has spread well beyond the house and the car.

Manufacturing in the United States has contracted at its fastest pace since the last recession -
now at its lowest level since October 2001.

NORBERT ORE: Most of this was confined to the financial services sector. Now it appears that it has
moved over into the manufacturing sector and if I knew all along that if it stayed around long
enough it eventually would happen and apparently this September is the month in which it really

PETER RYAN: Norbert Ore conducts a closely watched survey for the Institute for Supply Management.

He says most areas of the US economy are shrinking and the survey is approaching a benchmark that
indicates a recession.

NORBERT ORE: Textiles, wood products, furniture, apparel. Those industries that are housing
related, they have probably been in a recession for a number of months and the discouraging part is
that we have seen those industries decline even more in September.

PETER RYAN: The bleak outlook for manufacturing means job losses are mounting.

According to a private survey, large US companies planned to eliminate almost 100,000 jobs in
September - up a third on this time last year.

John Challenger is the survey's author.

JOHN CHALLENGER: Well it is pretty bleak right now. We've seen negative job creation every month
this year. We've seen lay-offs growing. In fact we are up almost 30 per cent, by a third from where
we were last September. By every indication, the crisis in the labour markets is growing.

PETER RYAN: Back on Wall Street, big financial firms are racing to raise cash.

One of the world's biggest companies, General Electric, wants to sell $12-billion in shares, and
the billionaire investor Warren Buffett says he's injecting $3-billion into GE in what he sees as a
long term investment.

WARREN BUFFETT: So I understand their businesses. We do a lot of business with them and GE is
going, it has been, I think it is the longest running stock in the Dow Jones industrial average. It
will be 100 years from now it will be around.

PETER RYAN: But all eyes remain on the bailout Bill being successfully rolled out.

Investor Philip Dow worries it could be too late.

PHILIP DOW: If you think of the financial system as a patient in the emergency room, that is where
it is right now. They are filling out insurance forms waiting to apply initial therapy so we can
get a cure going.

PETER RYAN: Like Wall Street, the Australian share market was flat in the lead up to the bailout

The focus is now on interest rates, with the Reserve Bank certain to cut by a quarter of a
percentage point next Tuesday.

While in America, speculation of an emergency cut before the Fed's next scheduled meeting is
gaining momentum.

LISA MILLAR: Business editor, Peter Ryan.