Comments: David L. Littmann
Senior VP & Chief Economist, Comerica Bank
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?
I doubt that this would qualify even as a mini-recession (ref: the now expunged 1966-7 episode), if measured as two consecutive contractive quarters. It will be a short-lived slump, whose hallmark is the severe contraction of U.S.-made auto and auto suppliers and the tech wreck, both manufacturing sector wring-outs.
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?
As the old economy turns in two consecutive GDP growth quarters in excess of 3%, the capital spending sector will revive. I have this revival placed mostly in the second half of 2002. Yes, it takes re-emergence of business investment to ramp growth (real saar) above 4%.
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?
The record volume of mortgage refis and the super-low short term rates are indicative of fed pumping at a rate ten times the real GDP expansion over the same 12 month time frame. The worry is inflation in 2003 and rising rates before then, especially long rates. The fed must remove excess liquidity that it injected and must do so early next year as it becomes clear the economy is re-accelerating.
Copyright 2001, Bloomberg L.P.
