Among professional investors, many maintain that bond and equity market performance gives a quicker read on the country’s short-term future than economic data, which usually takes months to compile. Alberto Paracchini, head of investment for Banco Popular North America, focuses on the fact that although the Fed has cut short-term interest rates, longer-term rates such as those on two-year, five-year, and 10-year bonds have not followed in tandem. That means investors and traders “have an expectation that there’s going to be higher growth at some point in the future and marginally higher inflation,” says Mr. Paracchini, who expects a turnaround by the second or third quarter.
“Typically, one would look to the credit market first, which is the bond market, and then to the stock market,” explains Mr. Rodriguez at Guzman & Co. “The credit market will start to be bullish on a sector or a company or just the economy, and the trades in the bond market [will] then filter toward the equity market. É Next year, barring some unforeseen event overseas or [something like] September 11, I think the stock market will be a good place for long-term investors to put their money.”
Several major brokerage firms confirm that bullish outlook. Dick Rippe, chief economist at Prudential Securities in New York, foresees a turnaround in the first quarter. In a study titled “2002: The Year Ahead,” Merrill Lynch Chief Economist Bruce Steinberg expects the recession to linger for winter and recover by spring, but he calculates that total U.S. GDP will grow less than 1 percent this year.
“If we are not out of [the recession] yet, we should be soon,” says Joel Naroff, CEO of Naroff Economic Advisors. He bases his optimistic outlook on stock market yield curves. In 2000, the average yield curve became inverted, the sign of an impending slowdown. During 2001, the curve returned to normal, indicating a recovery, and it steepened as the year progressed, indicating strong growth, according to Mr. Naroff.
But even the bullish Mr. Naroff thinks labor markets will remain weak until later in the year, a trend of particular concern to Hispanics. Between August and December 2001, total U.S. unemployment rose from 4.9 percent to 5.8 percent. During the same period, Hispanic unemployment rose nearly twice as much, from 6.4 percent to 7.9 percent (see graph), according to the Bureau of Labor Statistics. “The job market is a lagging indicator,” Mr. Naroff explains, because businesses don’t staff up until they have confidence in a sustained recovery. “We’ll see job growth by late summer or fall,” he says.
The Conference Board’s Mr. Goldstein joins other economists in declaring that the events of September 11 didn’t cause the recession, and he doesn’t believe they will lengthen it. “What September 11 and subsequent events have done is to intensify the economic downturn, not necessarily stretch it out in time,” he says. “It certainly helped drop corporate profits, because all of the write-offs happened in the third quarter , and that steepened the drop in profit loss. It had a big impact on consumer attitudes and some effect on consumer spending.”
For George Borjas, an economist with the John F. Kennedy School of Government at Harvard University and a member of the Hispanic Business Board of Economists, the terrorist threat -- or at least the fear of it -- could throw a monkey wrench into the recovery. “People are very uncertain whether to invest or not. They don’t know what’s going to happen,” Mr. Borjas says. “Will we have more of these things going on? I think we’ll begin to see a turnaround...assuming things remain stable.” He believes the recovery might begin as soon as the middle of the year, on the basis of renewed business investment and better employment markets.
Under the current circumstances, Mr. Borjas sees airlines and travel-related industries as indicative of consumer confidence and overall security. He suggests that because the travel industry may be the last sector to recover, its return to economic health could be considered proof of the overall economy’s recovery. “That will be a sign that things are back to normal,” he says.
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