Comments: Maury Harris
Chief US Economist, UBS Warburg
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?
Depth: The 1.0% cumulative decline in real GDP is smaller than other post-war recessions (except for the auto-strike induced 1970 recession).
Duration: Q2(01)-Q1(02)
Breadth: Housing is playing a positive role instead of a negative.
This recession was preceded by significant inventory liquidation, which limits the negative effects of inventories on GDP growth during the slowdown. We expect slower consumption growth but just one quarter of negative consumption -- meaning less pent up demand to fuel a sharp recovery.
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?
The economy can mount only a moderate recovery without a cap ex pickup. A slowing pace of inventory liquidation, stimulative monetary and fiscal policy, and falling oil prices are all positives.
Regarding business investment: the main influences are the end of the inventory correction in capital spending and a gradual pickup in new-product-driven replacement demand for tech goods.
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?
Copyright 2001, Bloomberg L.P.
