HispanicBusiness

Experts weigh in on when the economic recovery will begin.

By Scott Williams
HISPANIC BUSINESS® magazine
January/February 2002

With the U.S. recession approaching its one-year anniversary in March, CEOs and consumers are eager for it to end. A consensus of forecasters points to a recovery in the early months of 2002, although experts use different data to back up their projections (see table). “Enough stimulus has been pumped into this economy that …I would expect that, coming into the first quarter, companies will be reporting positive numbers,” says George Rodriguez, senior vice-president for Hispanic-owned brokerage Guzman & Co. According to the Blue Chip Economic Indicators, a survey of 53 leading forecasters, almost 70 percent of the prognosticators believe the recession will end by April 2002. The bullish outlook of Mr. Rodriguez hinges on the effect of the 11 interest rate cuts engineered by the Federal Reserve Board last year. The first came on January 3, 2001, when the Fed cut the federal funds rate from 6.5 percent to 6 percent; the most recent cut occurred on December 11, when the rate dropped from 2 percent to only 1.75 percent. “I think that with interest rates the way they are, the stage is set for recovery,” seconds Sam Ramirez, senior vice-president at Ramirez & Co., the oldest Hispanic-owned investment bank in the nation. But he calls the situation in the Middle East “the X-factor that’s hard to gauge,” and notes that any talk of a recovery presumes no new crises. “I’m hoping things on the political side will calm down and we won’t have any more events to decrease productivity and É hinder production in business in general,” he says. Because manufacturing led the country into the downturn, it could foreshadow a recovery. Once production starts to rise and companies report positive numbers, the turnaround likely will start in earnest, Mr. Rodriguez says, although it won’t affect the entire economy simultaneously. Six to nine months could pass before the $10 trillion U.S. economy begins a sustained, across-the-board recovery. Ken Goldstein, economist for the Conference Board, a nonprofit research group in New York, believes this recession differs from previous ones because of its origin in manufacturing rather than a fall-off in consumer consumption. Manufacturing investment dropped six to eight months before consumption did, while at the same time exports slowed. After double-digit growth in 1999 and 2000, nonresidential fixed business investment, a measure of manufacturing investment, declined 14.6 percent in the second quarter of 2001. As for predicting when the recession will end, Mr. Goldstein looks at employment data. He says it could take as long as 18 months before the economy resembles that of 1998 or 1999. He forecasts that employment -- a key measurement in his view -- may not rebound until late 2002 or early 2003. His colleague at the Conference Board, Research Director Lynn Franco, says “a rebound by mid-2002 is likely.” “We have to get through this period of falling consumer confidence and rising unemployment,” Mr. Goldstein says. “And [we] have to get businesses making money again and see the global economy rise [in growth rate] from 1.5 percent to 2 percent, which is possible by the end of this year.” Economists with the University of California at Los Angeles’ Anderson Forecast peg the end of the recession at “mid-2002.” Forecast Director Edward Leamer believes the economy will turn the corner when three imbalances are corrected: overinvestment in technology by businesses, overspending by consumers, and over-reliance on U.S. investments by portfolio managers. “We are in recession today because of rapid adjustment to the first imbalance,” Mr. Leamer says. “The bottom line: Expect a recovery by mid-year 2002, but a recovery with a relatively modest GDP growth.” Like Mr. Goldstein, Mr. Leamer expects unemployment to continue to rise during 2002.