Is the Bear Dead, the view from kansas City
JERRY HEASTER:
Happy talk can't strengthen current weak economy
By JERRY HEASTER - Columnist
While happy talk has become fashionable on Wall Street, this week's economic news was a harsh reminder that we're not out of the woods yet.
The recession that wasn't, as some experts have taken to calling the economic slowdown, still could be. Even if the economy manages to avoid the two consecutive quarters of contraction needed to make a recession official, prolonged anemic growth would still be painful.
Economic growth over the past two quarters has averaged an annual rate of less than 2 percent -- what some economists call a "growth recession." Friday's employment report revealed the pernicious potential of growth recessions.
Not only did the jobless rate rise to its highest point since late '98, but payroll employment went down instead of up, as unanimously forecast. The 223,000-job plunge was the biggest since just before the last recession ended in 1991. Friday's bad news was presaged by word Thursday that new claims for unemployment benefits had jumped to a level not seen in five years. Most analysts had predicted a decline.
Another important sign of weakness was a little-noticed report from the outplacement firm Challenger, Gray & Christmas showing more than 165,000 job cuts in April, four times more than in April a year ago.
As layoffs and job cuts have been announced with relentless regularity during the first four months of 2001, those who doubt the seriousness of the situation have emphasized continuing job growth. If companies are downsizing as much as claimed, they've responded, employment should be shrinking instead of showing modest growth. The sharp jobs contraction in April, however, coupled with March's more modest decline, confirms that the worker purge is for real. This means that continued weakness seems a surer bet than imminent recovery.
The stock market took what should have been bad news in stride, but this wasn't an anomaly. Each bit of bad news further assures another interest rate cut when Federal Reserve officials meet in mid-May to decide the direction of monetary policy.
Meanwhile, rising expectations of rate cuts this month and beyond feed a growing Wall Street optimism. Resident KPHN market maven Rob Black, for instance, unequivocally proclaimed the bear market dead during Monday's "Kansas City Star Business Hour." It was bold talk and reflected the improving mood among Wall Streeters, which helps explain recent market strength.
The optimism may be premature, however, given the substantial weakness signaled by a deteriorating job market. Consumers still drive two-thirds of economic growth, and workers who feel threatened will become more cautious consumers.
The Fed can cut rates till the cows come home, but it amounts to nothing if consumers get miserly and businesses don't invest. Bankers call it "pushing on a string."
If economic growth remains sluggish, so will profit growth. Without the promise of substantially higher earnings, the stock market lacks fuel for liftoff. Thus, proclaiming the bear dead isn't quite the same thing as saying the bull is snorting, pawing and rarin' to run.
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