Comments: Peter E. Kretzmer
Senior Economist, Banc of America Securities, LLC
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?
It will be relatively mild. We expect economic growth to resume in the first quarter of 2002. Consumer spending will not fall during any quarter of the downturn, rather the weakness has been concentrated in capital spending and involved a large manufacturing inventory correction.
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?
While capital spending has borne the brunt, the downturn was initiated by a weak stock market and slowing (not decline) in consumer spending. When the big inventory correction is finally behind us, profits will stabilise and so will business spending--but only moderate growth expected.
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?
We are seeing it already in the (comparatively) mild reaction of consumer spending to 9-11, and the quick rebound in October. Liquidity is also evident in the fast-growing money numbers, which will work into output next year, and eventually into product prices.
Copyright 2001, Bloomberg L.P.
