Comments: J. Prakken/C. Varvares
Macroeconomic Advisers, LLC
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 quick V-shaped recovery beginning in the first quarter of 2002. Early on much of the recovery is due to the absence of inventory decumulation and later accumulation. Initially consumer spending remains weak, but this is due to a payback from strong vehicle sales in October and November. By Q2-02 consumer spending picks up and at the same time, so does businesses investment in equipment and software. Fiscal policy is also a significant source of strength in our forecast.
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?
We show profits growing over 7% over 2002 (4th quarter over 4th quarter). This is due primarily to an acceleration in growth coupled with low unit labor costs. However, there is still very little acceleration of prices to help increase margins.
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?
MA shows PCE growth of 2.5% next year with consumer spending contributing 1.7 percentage points to our forecast of 3.1% real GDP growth. Negative wealth effects are still restraining PCE next year, depsite the recent upturn in the markets. Aiding growth are declineing energy prices, which boost growth in real disposable personal income, and additional tax cuts assumed in the forecast.
Copyright 2001, Bloomberg L.P.
