Wait. It ís not over yet
Weíve just seen the first signs of a U.S. recovery, which would shore up economies across the globe. But for investors, companies and workers, there are still plenty of risks ahead
By PAT REGNIER
Should we get our economic prognostications wrong this year, let Alan Greenspan be our alibi. The Fed Chairman, like everybody else, seems unsure of what to make of the U.S. economy. In mid-January, Greenspan sent the recently-revitalized Dow back into four-digit territory with just a few downbeat words about "significant risks" left in the economy.
Now he’s back to say he regrets the, er, "unfortunate phraseology, which in retrospect I should have done differently." Greenspan assured the U.S. Senate last week he really does think the economy is turning, if maybe not so fast as the markets seem to think. And that sounds about right—as long as you keep the emphasis on the not so fast bit.
Speed has so far been this recession’s hallmark. This time last year, almost no one thought the American economy would deteriorate so quickly. According to Consensus Economics, economists thought gdp growth would fall from a blistering 5.1% to a languid 2.6% in 2001; in fact, the U.S. barely managed 1% growth.
Economists will debate forever how much Sept. 11 accounts for their error, but the attacks certainly accelerated the onset of a full-blown recession. The stock market’s optimists are betting that the shock of it all will speed the recovery too. Sept. 11 made it impossible for overextended corporations to kid themselves anymore.
They slashed their inventories and their payrolls, and now many are even beating Wall Street’s (much lowered) expectations. That’s great, but listen for a moment to Morgan Stanley chief economist Stephen Roach. "Five of the last six U.S. recessions have had a double dip, in which we’ve seemed to come into a recovery and then had a relapse," he says. "It takes that second dip to purge the economy of excesses."
And there are still plenty of those: high consumer spending, busy homebuilding, heavy personal and corporate debts. Even as U.S. businesses are clawing their way to profitability, they’re in no mood to start hiring again, so consumption still has plenty of room to fall. Meanwhile, warns Merrill Lynch global investment strategist David Bowers, the corporate recovery (particularly in the tech sector) remains vulnerable to events in fragile Japan, as the tumbling yen gives Japanese exporters a pricing edge over their American rivals.
Yes, indeed, things are looking up. Shall we plan our celebrations for sometime around, say, summer 2003?
The U.S. Viewpoint — The Hangover
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