Comments: Richard Yamarone
Chief Economist, Argus Research
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?
Despite the horrific events of September 11, consumers have demonstrated an incredible resiliency to war, anthrax scares and rising unemployment. We expect another consumer-driven recovery. Sentiment, while hovering at lowly levels, remain far from those generally associated with recession.
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?
The corporate profit outlook should improve considerably now that payrolls have been slashed and energy costs -- a mere fraction of what they were a year ago -- are no longer a viable obstacle. Remember, it was higher energy costs late last year that sent corporate profits into a spiring downturn.
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?
Americans are coming off of an incredible 10 year period of wealth creation. Employment had fallen to 30-year lows, which fueled income growth. Inflation that hovered around 6.0% in the early 1990s, never exceeding 3.0% in recent years, and couldn't erode the value of assets. And perhaps more than anything else, a record low interest rate environment helped create the greatest boom in housing and home ownership, which sent home prices through the roof, creating a spectacular boom to household wealth. This trend should continue: most of the spending data recently released suggest so.
Copyright 2001, Bloomberg L.P.
