Comments: Lynn O. Michaelis
Chief Economist, Weyerhaeuser Co.
How do you expect the coming recovery to shape up, especially in terms of its strength and the sectors that will lead and lag behind? How have you factored in the uncertainties surrounding terrorist activity and the war?
We expect a slow recovery, with consumer and business investment lagging. Interest sensitive sectors such as housing will stay strong, but not grow too much from current levels. A rebound in inventories and governent spending are crucial to the outlook. We have assumed a contained war and no significant terrorist events.
The profits outlook is a crucial element in the recovery. What is your outlook for profits, and what factors will shape the profits recovery? Do your profit expectations square with those of investors?
Profits will bottom in early 2002 as operating rates stabilize and cost reductions are implemented. Also crucial will be the scaling back in investment that slows capacity growth, combined with closure of marginal facilities in industries with low operating rates.
Consumers will likely play a major role in the strength of the recovery. In the face of low savings, heavy debts, and sharply reduced wealth, how much can we expect households to contribute economic growth next year? And can we expect any contribution from housing?
Very slow. Consumers are likely to rebuild the balance sheet a little, but might take advantage of low interst rate loans. Not much upside to housing starts. We think government policy actions are crucial, such as cutting income taxes and increasing spending to help turn the economy.
Copyright 2001, Bloomberg L.P.
