For Hispanic professionals, the job market provides a more meaningful gauge of economic health than GDP growth. The graph at the left compares employment figures between September 1999 and March 2003 with average employment during a similar time period for the previous six recessions. The composite line representing previous slowdowns is higher than the most recent one, confirming that this is indeed a jobless recovery.
The forecasts all predict that unemployment - currently at 6 percent - will ease moderately in 2004, with estimates in the 5.5 to 5.8 percent range (see "Summary" table). The Conference Board measures the labor market through the volume of help-wanted advertising in major newspapers; in April the index stood at 35, down from 47 in 2002. Employment for Hispanics, however, has improved by 6 percent since the onset of the recession in March 2001. According to Juan Solana of HispanTelligence, three industrial sectors - construction, services, and finance - have increased their employment of Hispanics during the downturn. In the second half of 2003, "job growth will be tepid - not as bad as we've seen in the last two years, when we lost about 2 million jobs, but slow," says Stan Shipley, senior economist at Merrill Lynch in New York. "We see companies concentrating on cost savings and increasing productivity, and in that environment, you don't see job growth."
Jobs, Mr. Shipley explains, are more a consequence of recovery than a cause. Thus, jobs don't grow on the front end of a turnaround. Although Merrill Lynch predicts slightly improved GDP growth in the third and fourth quarters of 2003, "the job market will continue down, with flat to maybe a small positive by the end of the year," Mr. Shipley says. "But you don't get a strong recovery without job growth."
On a positive note, inflation appears under control over the current cycle, but even here economists see a potential problem. In his congressional testimony, Mr. Greenspan made slight reference to the risk of deflation when he remarked that "the probability of an unwelcome substantial fall in inflation over the next few quarters, though minor, exceeds that of a pickup in inflation." Most economists agree with Mr. Greenspan that deflation is a distant threat. "This is as bad as it gets," says Mr. Goldstein. "It's not going to get any worse."
With the Federal Reserve holding interest rates at 40-year lows, money would seem plentiful for growth-oriented CEOs, but that's no cure for the historical lack of access to capital by Hispanic firms. In any economy, large borrowers satisfy their capital needs before progressively smaller borrowers enter the market. Record budget deficits mean the federal government and many states are in the borrowing mode. "For the creditworthy customer, the money is there," says Mr. Goldstein. "But given how bad the economy is, unless you can prove to bankers that you can pay it back, they'll be wary of giving you money. Many business owners can tell you it's one thing to talk about low interest rates, but it's another to find someone to actually give you money."
Forecasters disagree on the effect of tax cuts and government deficits on the 2003-2004 outlook. Mr. Villamil says the deficit is the product of a slow economy exerting downward pressure on overall spending and tax revenue, and in the long term it should not have a negative impact on capital markets and business investment. "The deficit is not large in relation to the size of the economy and dollar liquidity," he points out.
On the other hand, Mr. Leamer at UCLA worries that the deficit could turn into a fiscal burden. "We didn't have a tax cut, we had a tax postponement," he maintains. "Postponement is the more appropriate word because the government still has to meet its obligations, and to do that it will have to borrow money that has to be paid back at some point."
Funding the deficit in the real time may present a challenge, especially if the economy picks up. The Federal Reserve's low interest rates (compared with those in Europe; see table at left), coupled with the decline of the dollar, motivated investors to pull $122.4 billion out of the U.S. economy in 2002. Although the capital exodus could hurt business investment, it offers hope to exporters and the many companies that service export-related activities. "The most immediate effect [of the dollar's devaluation] hurts you in the wallet," says Mr. Goldstein. "But then down the road, it comes at you the other way - your products are more competitive, so you can sell more. You take a short-term hit and a long-term gain. For small businesses, the big question is, do you have enough [capital] to hold in there until the turnaround?"
When asked about a signal when the economy turns the corner, economists often mention business investment. Mr. Leamer says capital spending is moving up, but he sees "no big surge" in the data. Mr. Goldstein predicts that "when it starts to happen, it will have a real kick." Many companies will feel hurried not to miss the boat, and quick depreciation of the investment will make it easier to make a decision.
For the long term, the U.S. economy looks bright, according to Mr. Goldstein, and even now conditions aren't bad. "The economy is still growing, but it feels like we're driving 15 in a 40-mile-per-hour zone. That's where we're going to stay for the summer," he says. "There's a lot of light at the end of the tunnel, but we don't know how long we'll be in here."
Written by Senior Editor Joel Russell with additional reporting by Senior Editor Tim Dougherty and Business Economist Juan Solana.
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