U.S. Recovery Seems Farther Away

By John S. McClenahen For months, apparently afraid of initiating a self-fulfilling prophecy, more than a few business executives and business economists have avoided using the word recession to describe the U.S. economic downturn. And technically -- even with the very weak 0.7% rate of GDP growth in this year's second quarter -- there's not been a recession. However, even such bullish forecasters as Bruce Steinberg, New York-based Merrill Lynch & Co. Inc.'s chief economist, seem unable to talk the U.S. economy into a quick and solid recovery. Steinberg is looking for GDP growth at an annual rate of 2% in the current quarter -- and concedes that's still a weak pace. He's expecting a growth rate of "around 3.5%" in the fourth quarter of this year and "around 4%" in 2002. But, admits Steinberg, his 2002 forecast "is considerably stronger than the consensus." There are several reasons to believe that recovery will be delayed. For instance, with inventories still being worked down, new manufacturing orders are not yet sufficient to stimulate a lot of new production. What's more, companies continue to hold capital spending in check as they carry excess capacity and seek to cut costs. Indeed, the U.S. Commerce Dept.'s Bureau of Economic Analysis figures that business fixed investment fell 13.6% in the second quarter, compared with only a 0.2% decline during this year's first quarter. In the second quarter, outlays for equipment and computer software, for example, dropped 14.5%, compared with a 4.1% decrease in the first three months of the year. Meanwhile, Jerry J. Jasinowski, president of the Washington-based National Assn. of Manufacturers, asserts that "a sharp deterioration in growth overseas and the continuing impact of the overvalued [U.S.] dollar are wreaking havoc on [American] companies' ability to export." Jasinowski is urging Chairman Alan Greenspan and his Federal Open Market Committee colleagues to cut short-term interest rates for the seventh time this year at their Aug. 21 meeting. And Jasinowski continues to jawbone a resistant Treasury Secretary Paul H. O'Neill to weaken the U.S. dollar.

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