Comments: James Paulsen
Chief Investment Officer,
Wells Capital Management
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?
The economy will leave recession in next year's first quarter, but the recovery will likely fade somewhat in the second half. Not back to a contraction, but dissapointing 2-ish % growth thru the balance of 2002. This is based primarily on my belief that the consumer sector will retrench even more than most now see likely next year as the cummulative impact of job losses hit the purse strings.
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 finally bottom next year, but their recovery will also likely prove disappointing owing to a weaker than expected consumer sector. To be sure, inventories are low and will be rebuilt, but the real driver of renewed consumer strength will not likely emerge next year.
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?
I think the consumer will prove disappointing and experience a year of liquidation, rreplenishing savings, lowering debt burdens and reestablishing some pent-up demands. I also think housing will also contract more than most now expect.
Copyright 2001, Bloomberg L.P.
