Who is Ed Hyman, and why should anyone care what he thinks? Hyman, a New York investment adviser, is a favorite of big-time money managers who perennially pick him as the nation’s best economic seer in Institutional Investor magazine. His optimism is widely shared by other economic gurus, too. “We’ve had glimmers of recovery for a year,” says Stephen Roach of Morgan Stanley, the blue-chip Wall Street investment firm, “but this time it looks like it’s for real.” Adds Roger Brinner of DRI, the biggest forecasting outfit in the United States: “The recovery should be durable this time.”
There are myriad reasons for the upbeat mood. Partly, it’s the result of a spate of improved economic reports. For example: housing starts are still climbing, layoffs are slowing and auto and retail sales are generally stronger. What’s more, consumer optimism is turning and business orders have increased. But more important than spot news is the return of such fundamentals as a healthier banking system, low interest rates and election-year increases in federal spending. “The foundations for recovery now seem solidly in place,” says Kemper Financial’s David Hale.
Of course, not all the arrows point in the right direction. In February, the unemployment rate rose slightly to 7.3 percent. But this dark spot masks some more basic vital signs: there were 164,000 new jobs created last month, and almost everyone was working a half-hour longer each week. Of course, there have been false starts before. A year ago the end of the gulf war created a wave of euphoria, but it was unsupported by the basics. The prime rate was still 9 percent, commercial real-estate prices were falling and the nation’s banks struggled under piles of bad debt. Consumers and private business were also laboring under record-high debt-service payments. Under the weight of such burdens, a 4.6 percent surge in retail sales during the middle of last year sputtered out.
Today many of the ills that sapped a recovery last year have been cured or are on the mend. In addition, inflation is running at just 2.5 percent, the lowest level since 1986. Combined with other favorable trends and a personal income gain of just under 2 percent a year, low inflation is a formula for increased consumer spending. Short-term interest rates are also steeply lower, down 35 percent, or nearly 3 whole points, from last year’s levels. Mortgage rates are off by almost as much. The banks-or most of them–have raised billions in new capital, and they have turned the corner in absorbing past losses. Restored to semi-health, the banks have been lending more in the past two months. “The financial base of the economy is [finally] being restored,” says Roach of Morgan Stanley.
The economy is getting an additional boost from the federal government, which lays out one quarter of all spending. Uncle Sam’s outlays, slated to rise by a whopping 11.5 percent this year, are being manipulated by the Bush administration to provide even more oomph. Last month, for instance, the Veterans Administration mailed out $506 million in life-insurance dividend checks. Normally, these checks would have been spread out in mailings through Sept. 30. The administration is also accelerating payments to highway builders, defense industries and almost any federal contractor it can find. “It’s called re-electing the president,” says Hyman. When those federal dollars filter down to paychecks, there is a lot of pent-up demand that will be filled. It’s been a long, two-year recession, and a lot of consumers need everything from new tires to cars and television sets.
What could go wrong.? To begin with, the government’s election-year serving of pork could prove a mixed economic blessing. It could add to the $400 billion federal budget deficit, which threatens to abort the recovery by driving up long-term interest rates. Indeed, a survey last week of 51 forecasters by Blue Chip Economic Indicators projected only 3 percent growth for the first year of the expansion, only half the normal post-recession rise.
The optimists are hoping for something better, along the order of 4 percent or more for several quarters. Growth at this faster rate would probably leave the unemployment rate near 7 percent until well into next year. Even so, a weak recovery is better than none at all.
Some economists say that recent economic data mean that the recession has come to an end.
Low-interest-rate policies at the Federal Reserve finally take hold; bank lending climbs.
Retail sales launch two-month upsurge; autos firm; home sales soar 13 percent.
Michigan Consumer Confidence index climbs; new claims for jobless benefits dip.
Leading indicators leap after half-year lag; purchasing-agents index soars 10.5 percent.
title: “The Recession S Over Shhh " ShowToc: true date: “2023-01-04” author: “Bryan Newland”
Who is Ed Hyman, and why should anyone care what he thinks? Hyman, a New York investment adviser, is a favorite of big-time money managers who perennially pick him as the nation’s best economic seer in Institutional Investor magazine. His optimism is widely shared by other economic gurus, too. “We’ve had glimmers of recovery for a year,” says Stephen Roach of Morgan Stanley, the blue-chip Wall Street investment firm, “but this time it looks like it’s for real.” Adds Roger Brinner of DRI, the biggest forecasting outfit in the United States: “The recovery should be durable this time.”
There are myriad reasons for the upbeat mood. Partly, it’s the result of a spate of improved economic reports. For example: housing starts are still climbing, layoffs are slowing and auto and retail sales are generally stronger. What’s more, consumer optimism is turning and business orders have increased. But more important than spot news is the return of such fundamentals as a healthier banking system, low interest rates and election-year increases in federal spending. “The foundations for recovery now seem solidly in place,” says Kemper Financial’s David Hale.
Of course, not all the arrows point in the right direction. In February, the unemployment rate rose slightly to 7.3 percent. But this dark spot masks some more basic vital signs: there were 164,000 new jobs created last month, and almost everyone was working a half-hour longer each week. Of course, there have been false starts before. A year ago the end of the gulf war created a wave of euphoria, but it was unsupported by the basics. The prime rate was still 9 percent, commercial real-estate prices were falling and the nation’s banks struggled under piles of bad debt. Consumers and private business were also laboring under record-high debt-service payments. Under the weight of such burdens, a 4.6 percent surge in retail sales during the middle of last year sputtered out.
Today many of the ills that sapped a recovery last year have been cured or are on the mend. In addition, inflation is running at just 2.5 percent, the lowest level since 1986. Combined with other favorable trends and a personal income gain of just under 2 percent a year, low inflation is a formula for increased consumer spending. Short-term interest rates are also steeply lower, down 35 percent, or nearly 3 whole points, from last year’s levels. Mortgage rates are off by almost as much. The banks-or most of them–have raised billions in new capital, and they have turned the corner in absorbing past losses. Restored to semi-health, the banks have been lending more in the past two months. “The financial base of the economy is [finally] being restored,” says Roach of Morgan Stanley.
The economy is getting an additional boost from the federal government, which lays out one quarter of all spending. Uncle Sam’s outlays, slated to rise by a whopping 11.5 percent this year, are being manipulated by the Bush administration to provide even more oomph. Last month, for instance, the Veterans Administration mailed out $506 million in life-insurance dividend checks. Normally, these checks would have been spread out in mailings through Sept. 30. The administration is also accelerating payments to highway builders, defense industries and almost any federal contractor it can find. “It’s called re-electing the president,” says Hyman. When those federal dollars filter down to paychecks, there is a lot of pent-up demand that will be filled. It’s been a long, two-year recession, and a lot of consumers need everything from new tires to cars and television sets.
What could go wrong.? To begin with, the government’s election-year serving of pork could prove a mixed economic blessing. It could add to the $400 billion federal budget deficit, which threatens to abort the recovery by driving up long-term interest rates. Indeed, a survey last week of 51 forecasters by Blue Chip Economic Indicators projected only 3 percent growth for the first year of the expansion, only half the normal post-recession rise.
The optimists are hoping for something better, along the order of 4 percent or more for several quarters. Growth at this faster rate would probably leave the unemployment rate near 7 percent until well into next year. Even so, a weak recovery is better than none at all.
Some economists say that recent economic data mean that the recession has come to an end.
Low-interest-rate policies at the Federal Reserve finally take hold; bank lending climbs.
Retail sales launch two-month upsurge; autos firm; home sales soar 13 percent.
Michigan Consumer Confidence index climbs; new claims for jobless benefits dip.
Leading indicators leap after half-year lag; purchasing-agents index soars 10.5 percent.
