GAS-L: According to the wise men in the US

[Peter Singfield <snkm@btl.net>]

In the following we get to see the real reasoning. The American consumer
needs to spend more -- then everything will be OK.

My question -- where do they get this money to spend?? Lot of jobs going
down the tubes!

Peter


"The loss of wealth in the stock market – more than $500 billion in equity
value disappeared on the day trading resumed – could have a big impact on
consumer spending."


Short recession likely
 
http://cnnfn.cnn.com/2001/09/20/economy/toll_economy/

Many economists expect recession in wake of attacks, but it could be short
 
By Staff Writer Mark Gongloff
September 20, 2001: 12:39 p.m. ET
 
NEW YORK (CNNfn) - Most economists think last week's terror attacks will
tip the world's largest economy into a recession, if it wasn't there
already, but the downturn probably won't last long.

"We were right on the cusp, and I think this pushes us over the edge," said
Robert Macintosh, chief economist at Eaton Vance Management, using language
heard often from economists in recent days. "But I do think it will be
shallow and short."

The U.S. economy, as measured by gross domestic product (GDP), grew at a
feeble 0.2 percent annual rate in the second quarter. For the most part,
consumer spending kept the economy growing, counteracting a manufacturing
recession and a slowdown in spending by businesses.

But economists think consumers will react negatively to the terrorist
attacks on Sept. 11 that destroyed the World Trade Center in New York,
damaged the Pentagon in Washington, D.C., caused the crash of an airliner
in rural Pennsylvania and likely killed thousands of people.

"Consumer confidence numbers will most likely plummet in September," said
Kathleen Camilli, chief economist with Tucker Anthony.

Others weren't so sure, hoping Americans will respond to calls that buying
something – anything – was their patriotic duty.

"The crucial question is: What does the consumer do now?" said John
Davidson, chief investment officer at Circle Trust. "The answer will take
some time to determine."


Click here for CNNfn.com's economic calendar

Even before the attacks, there were signs that a year-long downturn in the
rest of the economy – resulting in hundreds of thousands of job cuts and an
unemployment rate that jumped in August to 4.9 percent – was beginning to
take its toll on consumer confidence.

The Federal Reserve's "beige book" report, released Wednesday, reported
sluggish consumer spending in the weeks before the attacks. But Fed
Chairman Alan Greenspan, testifying before Congress Thursday, contradicted
that report, saying consumer spending actually grew in August and early
September.

In the days after the attacks, anecdotal evidence painted a mixed picture
of America's reaction. On one hand, a Circuit City (CC: down $0.25 to
$10.15, Research, Estimates) store in Manhattan was packed with shoppers
this past weekend.

On the other hand, companies from American Express Co. (AXP: up $0.20 to
$26.20, Research, Estimates) to Viacom Inc. (VIA: down $1.40 to $30.00,
Research, Estimates) have warned that the attacks are going to hurt their
bottom line.

"There's a lot of uncertainty about the outlook," said Henry Willmore,
chief economist at Barclays Capital. "There are a lot of risks, mainly
downside risks."

Especially hard-hit will be the airline and tourism industries. Airlines,
stung by nervous travelers canceling flight plans and tighter security
measures slowing down schedules, have already cut tens of thousands of
jobs. Disruptions in the airline industry could be felt throughout the
economy, slowing down the transportation of vital people and supplies.

Together, the transportation and recreation sectors make up about 5.3
percent of the total U.S. GDP. If GDP is already weak, a big hit in these
sectors alone could tip the economy into negative territory.

In fact, a survey of 52 economists, conducted Wednesday by Aspen Publishing
Inc., publisher of Blue Chip Economic Indicators, found 82 percent think
the economy is in a recession, but about 80 percent think it will be no
worse than the recession of 1990-1991. Most GDP to return to growth by the
first quarter of 2002.

"The events of this week make a more pronounced v-shape in the downturn,"
said Camilli of Tucker Anthony. "While obviously this will have a very
short-term negative impact on us, investors should be focused on the next
six-to-nine months."

The Federal Reserve cut its target for short-term interest rates for the
eighth time this year on Monday to 3.0 percent, the lowest level since
September 1992. The cut was mostly an effort to keep stock prices from
plunging on their first day of trading after a four-day hiatus.

The loss of wealth in the stock market – more than $500 billion in equity
value disappeared on the day trading resumed – could have a big impact on
consumer spending.

"The Fed can and will be much more of an active player in the stock market
until it turns the corner," said Ian Shepherdson, chief economist at High
Frequency Economics Ltd.

Aside from a psychological boost, the Fed's cuts could have little or no
real impact on consumers for several months, as long-term rates on debts
such as mortgages have stopped falling and consumers have already taken on
record levels of debt.

"The problem is, the private sector doesn't have the balance-sheet capacity
to take on more debt, and the banking system is not in a position to extend
more credit," said former Fed economist Lacy Hunt, now chief economist at
Hoisington Investment Management Co. "So monetary policy may not work at all."


Government likely to boost economy

Balancing this gloomy scenario is the prospect of economic stimuli as the
country rebuilds and girds itself for a protracted war on terrorism.

President Bush has already signed a $40-billion relief package and is
expected to give billions more to the airlines. The Fed is likely to cut
rates again at or before its next policy meeting, scheduled for Oct. 2, and
Congress is exploring other ways to stimulate the economy.

With so much help on the way, I have less doubt now than I've ever had in
my career that we're going to turn this around," said Anthony Chan, chief
economist at Banc One Investment Advisors.

Other stimuli could include construction and information-technology
spending in downtown New York, private-sector spending on security
measures, and government spending on the military. Unfortunately, these
boosts have caveats that could lessen their impact.

Unlike the rebuilding of south Florida after Hurricane Andrew in 1993 –
when houses, stores and offices were rebuilt immediately, pouring $25
billion into the economy in one quarter – it could take years for New York
to rebuild the World Trade Center area.

"This isn't going to be settled overnight," Hunt said. "In New York, there
will be debris removal and shoring up subway lines, but not massive
reconstruction. People will use up the extra space available in New York,
New Jersey and Connecticut. That doesn't mean they're going to be building
new buildings."


Guns or butter

Some economists think a war could boost a sluggish economy, as it did in
World War Two.

But the military response to the attacks is unlikely to be a massive
invasion such as the Gulf War. More likely are small-scale operations
against Osama Bin Laden and other terrorist leaders and terrorist-friendly
governments and tactical strikes against specific targets, according to
Michael O'Hanlon, senior fellow of foreign policy studies at the Brookings
Institution.

O'Hanlon estimated the cost of such operations to the government could run
about $1 billion a month for the duration of the conflict.

"When you add up the different pieces, there's good news and bad news,"
O'Hanlon said. "The good news is: It's not a huge operation; maybe 50,000
people at maximum. The bad news is: It may not work any time soon." 


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