Comments: Bruce Steinberg
Chief Economist, Merrill Lynch
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?
An average V-shaped recovery led by defense spending, inventory building, and firming consumer spending.
We have incorporated increased consumer and business uncertainty following the terrorist attack into 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?
Profits are roughly coincident with economic growth. As growth accelerates in the second half of next year, profits should turn up quickly and lead to strong investment.
For the second half of 2002 and 2003, our profit and earnings outlook is stronger than the consensus top-down estimate.
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?
Those are secondary considerations in regard to consumer spending. Primary variables are personal income, sentiment, and the amount of pent-up demand, which suggest that consumer spending will be healthy next year.
Copyright 2001, Bloomberg L.P.
