... in the interests of giving the ostrich an equal opportunity ... <g>
April 13, 2001, The New York Times
Floyd Norris: Prospect of a Recession Seems Less Terrorizing by Floyd Norris
"I hear, but I do not listen."
So said Wim Duisenberg, the president of the European Central Bank, this week as the bank ignored the chorus of pleas that it cut interest rates.
The inaction confounded, among others, the German government, which sees its economy weakening and fears that the American slowdown will damage Europe. Before the central bank met, the majority view in financial markets was that the bank would ease credit a bit by cutting its benchmark interest rate a quarter-point. Some forecast a larger reduction. Both groups were wrong.
What should we make of Mr. Duisenberg? One interpretation is that he is determined to get a reputation for toughness for the bank and that public pressure from politicians makes him that much less willing to lower rates.
The other is that he thinks all the fuss is overstated. Perhaps he recalls the panic in financial markets in 1998 after the Russian devaluation and default. The widely expected worldwide recession never appeared. So far the economic data in Europe, unlike here, does not show that a sharp slowdown has arrived.
The sense that the American slowdown may not turn out to be that big a deal also seems to be spreading here. The National Bureau of Economic Research, which certifies recessions, says it sees no need to even discuss whether one began late last year. Optimists hope that the inventory correction is nearing an end.
In corporate America, there is hope even as companies cut back. "The current period that we are managing through is challenging, but it is temporary," said Timothy Koogle, the soon-to-be-replaced chief executive of Yahoo, which is firing 12 percent of its employees.
Yahoo's stock rose. So did shares of Motorola, which said this quarter looks worse than the last one, when it had its first loss in 15 years. Things can't get much worse, the market seems to be saying, so this is a good time to buy.
The stock market usually hits bottom long before recessions end, and often before the bureau discovers they have begun, so there may be something to that. Robert Barbera, the chief economist of Hoenig & Company, says large technology stocks may rebound after their huge declines. "The precipitous declines after bubbles burst always end with the bubble stocks still expensive," he said. They then get cheap over a longer period, punctuated by rallies that eventually fade. That could be happening now.
But even if the stock market does not resume its slide, this is likely to be a summer of negative headlines for the economy, with consumers cutting back amid rising unemployment. New unemployment claims are running more than 40 percent ahead of levels a year ago, the first such increase since 1991, in the midst of recession.
The coming economic woes will be felt most by companies that rely on consumer spending. The fall in retail sales in March will not be the last such decline.
The slowdown will end, perhaps having earned the title of recession and perhaps not, but the revival is not going to be an impressive one. Much of the boom was bubble-related, and working off those excesses will take time.
The comfortable belief that America's problems will end soon, and that they will do so little damage internationally that there is no need for the European Central Bank to act, sounds awfully complacent.
Mr. Duisenberg may not be hard of hearing. But Europe may soon wish he had been a better listener.
Copyright 2001 The New York Times Company
nytimes.com |
