Comments: Richard D. Rippe
Managing Director & Chief Economist, Prudential Securities Inc.
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?
I expect a solid expansion to unfold during 2002, led by consumer and federal government spending along with completion of the inventory correction. Capital spending will lag but only a little as the low point should be reached in the first half of 2002. I expect terroism fears to diminish and the Afghanistan phase of the war to be concluded in the first half of next year.
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 should rebound significantly as volume (and revenue) turn up, wage increases slow, and productivity rebounds.
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?
Once total employment stops falling, the consumer sector will be well supported by tax cuts, falling energy prices and improved net worth--both from housing assets and the stock market. Housing will hold up well, but it is unlikely to be a significant contributor to demand growth.
Copyright 2001, Bloomberg L.P.
