Economic Outlook :
In the 11:18 story, we discussed the difficulties of assessing consumer confidence in the immediate aftermath of the Sep 11 attacks. The same will be true of economic statistics generally over the coming few months. As September data are released beginning with the NAPM report on October 1, there is little doubt that the news will be bleak. The disruptions to the economy were widespread, ranging from a general stoppage of work as the nation watched the tragedy unfold to the halting of all air traffic for several days. Even the October data could be difficult to interpret, as many economic numbers will recover from the extraordinarily weak September readings. The best read on the economy will probably come from the Christmas season. Consumers are clearly the key issue now; their resilience propped up the economy even as businesses retrenched over the past year, but that resilience is now called into question by the plunge in consumer confidence. How consumers behave after the passage of time since Sep 11 and most likely after the initial American attacks on Afghanistan will be a crucial test. Though outright optimism that we will see a strong Christmas is a stretch, it is conceivable that consumers will do as they have done throughout this downturn, and manage to struggle through with sluggish growth. It is still far too early to understand all of the economic consequences of Sep 11, but the early indications are somewhat encouraging. Businesses are clearly more cautious, but there is plenty of anecdotal evidence that a return to normalcy is underway. Similarly, reports from retailers indicate that consumers pulled back dramatically in the immediate aftermath, but have been gradually returning to normal spending patterns. Whether that recovery continues or stalls is the key question, and it is the question that Christmas will answer. Also adding to a cautious optimism that the current recession will be relatively shallow is the help being offered by monetary and fiscal policy. Already, a great deal of monetary and fiscal stimulus is in the pipeline, and it's quite likely that more is on the way. Additional Fed rate cuts prior to year-end are a near certainty, and momentum to push through more fiscal stimulus via spending increases and tax cuts is building. Finally, the inventory correction underway for a year was finally beginning to bring down inventory/sales ratios to a leaner level prior to the attacks, offering hope that additional inventory reductions need not be dramatic. The shock to the economy in September will be severe, but with a little help from Greenspan and Congress, consumers might save the economy during the holidays. - Greg Jones, Briefing.com |
