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Subject: [mobilize-globally] Hints of a Hard U.S. Economic Landing
Subject:
[CTRL] IHT: Hints of a Hard U.S. Economic Landing
Date:
Thu, 16 Nov 2000 11:39:46 EST
From:
Kris Millegan <[EMAIL PROTECTED]>
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-Caveat Lector-
from:
http://www.iht.com/articles/1602.htm
Click Here: <A
HREF="http://www.iht.com/articles/1602.htm">IHT: Hints of a
Hard U.S. Economic Landing</A>
-----
Hints of a Hard U.S. Economic Landing
Steven Pearlstein Washington Post Service
Thursday, November 16, 2000 WASHINGTON If you like the
uncertainty of the
2000 presidential election, you will love the U.S. economy
next year.
Economists and policymakers have been talking up the
likelihood of a soft
landing, in which overheated economic growth would slow, but
not anywhere
near enough to cause an economy shrinking recession. The
burst in the dot-com
bubble, the slowing of job growth, the decline in the stock
market - all were
said to be consistent with the much hoped-for soft landing.
But some analysts in recent weeks have begun to warn that
the landing may be
a bit bumpier than first thought. While recession is still considered
unlikely, there is growing fear that the economy may
overshoot the runway.
"In my view, we're in for something harder than a soft
landing," said Allen
Sinai, an economist with Decision Economics Inc. "The bad
news is coming in
quite quickly now."
Don Hilber, a forecaster with Wells Fargo Corp., said the
most likely
scenario now was for a "rough landing," which he warned
won't be pretty, even
if a recession is avoided. He predicts a rash of business
failures, layoffs
in many industries and a sharp drop in corporate profits and consumer
spending.
And Morgan Stanley Dean Witter's chief economist, Stephen
Roach, told clients
this week to "remain on maximum alert for a global hard
landing in the first
half of 2001."
Even analysts who are sticking by the soft-landing scenario
are now careful
to acknowledge the risks ahead. These include another big
drop in stock
prices, another spike in oil prices or bigger-than expected
declines in
corporate profits.
On Wednesday, Federal Reserve Board policymakers, though
they left rates
unchanged, warned that inflation was still a risk. Stocks
gave up most of
their gains after the warning. (Page 20)
"The recent declines in the stock market, high energy prices
and financial
market turmoil have added uncertainty to the outlook for
near-term economic
activity," Bank of America's chief economist, Mickey Levy, said.
Nonetheless, Mr. Levy stands by his forecast that the
economy will grow at a
rate of around 3 percent next year - a steep descent from
the 5.7 percent
annual rate recorded this spring but still enough to keep
most Americans
happy.
This week, Mr. Levy and others in the soft-landing camp got
a boost when Abby
Joseph Cohen of Goldman Sachs Group said there were "clear
signs of economic
deceleration but not deterioration." Ms. Cohen's pep talk
helped spark a
rally on Wall Street on Tuesday that added more than 160
points to both the
Dow Jones industrial average and the Nasdaq composite index.
Even optimists, however, acknowledge that if the annual
growth rate of the
economy slows to below 2 percent for six months or more, it
won't matter much
that the economy hasn't slipped officially into a recession,
which is defined
as six months of economic contraction. To most Americans,
they say, it will
feel like a recession, with the unemployment rate rising to
5 percent,
household incomes stagnant and Wall Street in the middle of
a bear market.
Recent economic news has hardly been upbeat. Last week,
first-time claims for
state unemployment benefits jumped 35,000, to 344,000,
largely because
automakers shuttered plants for a week after finding
themselves with too many
cars just as consumers began to get cautious about spending.
The government reported Tuesday that retail sales rose only
0.1 percent in
October. Data on Wednesday showed that industrial production
fell 0.1 percent
in October, and that businesses inventories rose in
September at the lowest
rate since January 1999.
And First Call/Thomson Financial said that analysts have
revised their
predictions of operating profit growth next year for the 500
companies in the
Standard Poor's index, from 15.6 percent to 11.2 percent.
Analysts are divided on whether businesses are finding it
more difficult to
finance expansion. Already, the flow of capital to young and growing
companies has slowed dramatically as venture capitalists
have pulled in their
horns and the flow of new stock and bond issues on Wall
Street has slowed to
a trickle.
Banks are also beginning to tighten their lending terms in
response to
warnings from regulators. The focus of concern is the high
volume of
syndicated "bridge" loans made to telecommunications,
entertainment and
computer companies during the last two years, often with the
expectation that
they would be paid off quickly with the proceeds of stock
and bond sales that
now appear unlikely.
These developments indicate to many analysts that lenders
and investors have
begun to take a more realistic view of business risk.
But pessimists say the bad news is just beginning, and that
there remains a
substantial risk of a full-blown "liquidity crisis," in
which lending
completely dries up, particularly if overseas investors
begin to trim their
exposure to the U.S. stock and bond markets.
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