Consumer confidence was perhaps needlessly dashed

Journal Record, The (Oklahoma City), Feb 20, 2001 by John Cunniff

This is a rough time for American consumers, their confidence raised giddily high by an era of good times, then shocked by recession warnings, and then told that things might really not be so bad.

All this has occurred in just a few months, and it has left most ordinary folks wondering: What in the economy is going on? Are things really as bad as suddenly they are depicted? Or is there some hope just ahead?

Perhaps the most alarming references to recession were made by Federal Reserve Chairman Alan Greenspan, who suddenly lowered interest rates in January because of evidence the expansion had all but tanked in December.

The alarm with which he viewed the December evidence, which suggested to him that the economy was near zero growth, was picked up by already worried consumers. Heretofore, they knew, Greenspan had been seeking a slowdown.

Their fears were probably reinforced by of all things, two sudden cuts in interest rates which, though designed to restore consumer confidence by encouraging buying, selling and borrowing, probably did the opposite.

Now, some clarifications are evolving.

First, a survey of forecasters by Blue Chip Economic Indicators, a private sector organization, shows only 5 percent of respondents believe a recession exists, and the consensus is there won't be one.

Secondly, Greenspan, the nation's most powerful monetary figure, testified before a Senate committee last week that the sudden December downturn seems not to have persisted.

In fact, the chairman's mood seemed to have changed. He had some good things to say about the economy's potential, mainly about technology-based increases in productivity, or the efficiency of the production process.

The same efficiency that helped create and sustain the boom, he also suggested, may also enable the Fed, economists and business people to assess the status of the economy and quickly take remedial moves.

Finally, the confusion over "downturn" and "recession" is becoming better understood. It is understandable that consumers may have missed the distinction, because for 10 fat years nobody had to think much about it.

Besides, the distinction is blurred.

A slowdown occurs when the expansion rate deteriorates. The expansion continues, albeit at a slower pace. That slower pace may be like walking instead of running, or even moping along instead of walking vigorously.

The distinction is that there is forward movement -- growth -- with rare exceptions. Based on a generally accepted definition, the expansion can be interrupted by one quarter of no growth or even retreat from growth.

But if negative numbers occur for two straight quarters, then by that same interpretation the economy has entered a recession. It can be mild or severe, longer than a year or as brief as a couple of quarters.

The economy has indeed slowed, and a consensus of private forecasters suggests that this year's economic growth rate will be between 2 percent and 2.5 percent, maybe even improving as the year wears on. Not bad.

Forecasts have been far off the mark before -- just check Wall Street's long trail of bad forecasts, for example -- and they can be again. But for now, maybe these same forecasts can lift the spirits of consumers.

John Cunniff comments on business trends for The Associated Press.