Comments: William C. Dunkelberg
Chief Economist, National Federation of Independent Business
How bad will the recession be in terms of its depth, breadth, and duration? Importantly, how does this downturn differ from those in the past, and how will those differences affect how this recession will play out?
Short recession, about 11,12 months by NBER standards, slow (jobless) recovery, shallow dip with gdp growing but not fast enough to keep unemployment stable. Government spending is growing at a fast pace from last budget, add stimulus, security and war and there is a big cushion. 63% of over-16 population still working, one of the highest rates in history, keeps consumption ok. Consumption anchors, govt spending pushes hard while investment spending stays flat on its back.
Capital spending has borne the brunt of this slowdown/recession. Can the economy mount any meaningful recovery without a significant pick up in capital spending? What are the influences underlying your outlook for business investment next year?
This is a "too much stuff" recession -- record car, housing, stock market, employment, consumption etc. year in 2000 and strong 5 years leading up to it. no room in driveway for more cars! have to use up what we "overbuilt". Lower interest rates wont get more fiber optic cable laid. definintely too much stuff in investment, reaching 20% of gdp in 2000 before turning down. Capital spending didnt take the "brunt" of the slowdown, it was the initial cause. Slowdown started in 2000Q3 with 1.3% growth, then 1.9% in Q4. Growth was sub par for 6 months in 2000.
The Fed has lopped off 450 basis points in 11 months. What are the signs that easier policy is working its way through to the real economy? Is there some structural blockage, or should we just be patient? What kind of headwinds are policymakers up against?
A net 1% of small business reported "last loan harder to get than time before" e.g. monetary policy is easy and loans are not hard to get. 2% cite credit cost and availability as #1 business problem, down from 37% in early 1980s. cost of funds falling too. But, thats the denominator in the valuation equation. the numerator, cash flow or profit, is not looking good for a while. So, lower rates dont help a whole lot when numerator declines offset lower rates in denominator. have to use up all the "stuff" we accumulated and have demand start to recover (numerator) before lower rates and easy credit will help. Patience, after all, it was a record long expansion
Copyright 2001, Bloomberg L.P.
