i provide the MOST bullish forecast of the day to provide equal time to my most bearish views--this one will slake the thirst of the most thirsty bull:) Economy Reeling but Should Rebound in '02
Oct 21 10:18am ET
By Glenn Somerville
WASHINGTON (Reuters) - While the mighty U.S. economy teeters on the brink of recession now -- and may already have toppled in -- top Wall Street watchers and policy-makers paid to forecast the future like its odds of clambering back to prosperity not far down the road.
Virtually all endorse Federal Reserve Chairman Alan Greenspan's prediction last week that any wide-scale downturn flowing from Sept. 11 attacks will be relatively brief -- and most see a healthy rebound next year as a fiscal and monetary tonic takes hold.
"Our forecast is that growth will be back to a 3 percent to 3-1/2 percent range in the second half of next year, and that should be looked at as a rather robust performance," said economist Kathleen Stephansen of Credit Suisse First Boston Corp. in New York.
Everyone concedes the economy was left reeling after the devastating terror attacks that closed the nation's shopping malls for days, savaged industries from airlines to hotels and killed thousands of people in New York, Washington and Pennsylvania. A majority of private economists think a recession has already begun.
Still, Greenspan told Congress on Wednesday that the consumer and business pullback "has been partial and presumably temporary" and pointed to some signs of modest recovery. He repeated the remarks on Friday to an Italian-American group, saying air freight was largely back to normal and hospitality industries, while struggling, were gaining back business.
Credit Suisse is forecasting a relatively mild recession, lasting three quarters beginning with the July-September third quarter before an upswing begins next spring. A recession typically is defined as at least six months of declining output, something the United States has not endured since the nine months from mid-1990 to March 1991.
JOLT OF STIMULUS COMING
By next spring, the economy should have a mighty dose of stimulants pumping through its veins, from billions of dollars of income-tax cuts to the lowest interest rates in decades.
The Bush administration put about $50 billion of emergency aid into play immediately after the attacks and asked Congress to approve another fiscal stimulus package up to $75 billion -- a process now moving through Congress though the final dollar amount is uncertain.
The Fed has cut interest rates nine times, including twice since the attacks, by a total of 4 full percentage points, lowering its key federal funds rate to a near 40-year low of 2.5 percent.
"If you look at it, given all the fiscal and monetary policy that has been put in place, I'd think a recovery should certainly be pretty solid," said Jamie Jackson, a senior portfolio manager for a fixed-income division of UBS Warburg in New York. Jackson said UBS Warburg sees a recovery getting under way during the first or second quarter of 2002.
One of the driving forces behind the unprecedented period of prosperity since the last recession was rising productivity, or output per worker, which permitted personal incomes to grow without the risk of fostering inflation.
STILL A BELIEVER
Greenspan, who was one of the first to spot the importance of the trend to higher productivity growth in the 1990s, made clear last week that he has lost none of his faith in productivity and that he saw it as a key to a swift bounceback once the current period of "uncertainty" stemming from the attacks and from subsequent fear of anthrax.
"For the longer term, prospects for ongoing rapid technological advance and associated faster productivity growth are scarcely diminished," the Fed chief declared.
Robert Dederick, economic consultant to Northern Trust Co. in Chicago, sounds a word of caution on whether productivity can quickly regain the lofty levels of the 1990s, particularly since a business capital spending boom that helped fuel it has led to a global over-capacity in many industries.
While prior to the attacks, many industries from automaking to retailing already had shown solid progress in working down swollen inventories that held the economy back early in 2001, there remains a real question whether demand is buoyant enough to lead to a surge in production.
"Fundamentally, I don't think we're going to see a quick return to the animal spirits we had before and consequently I don't see the exuberance we had before and that may put a cap on the extent of recovery," Dederick said.
Still, he said "a safe forecast" would be a return to economic growth in the range of 3 to 3-1/2 a year by the final six months next year, if for no other reason than that much of the restraint on the economy from past over-production has largely been worked through.
What is needed now is a more confident consumer to pick up the slack once a recession is over next year.
"Basically, when you have all that bad news behind you, it would be hard to believe that there can be that much left in front of you," Dederick said. "Therefore, it would argue for something relatively brief, in the range of six to nine months.">> end quote--from today's Silicon Investor's highlighted news.Max |
