A Framework That Provides Clarity

During periods of “low visibility,” confusion reigns: for every indication of one trend, there seems to be a countertrend. The key is to glean from the collective wisdom of reliable leading indicators a clear signal that the economy is headed for a turn.



Confidence and the economy

LOU DOBBS: Consumers and their willingness to spend are the lynchpin holding this economy together. Americans may be gratified to see their government striking back at terrorists, but wars don't always boost consumer confidence. Here to talk about this economy's prospects, Lakshman Achuthan, economist and MONEYLINE regular. Good to have you here back today.


DOBBS: Consumer confidence. I think back to the Gulf War, when those first strikes occurred. That really boosted the market.

ACHUTHAN: That would be very helpful, if that would happen now.

DOBBS: Are we going to see that?
ACHUTHAN: I hope so. We have on the one hand...

DOBBS: You hope so.

ACHUTHAN: I certainly hope so.

DOBBS: You're here -- you know.

ACHUTHAN: Well, I know. Here's what I know. I know e that we're in a business-led global recession. That's on the one hand. On the other hand, like a economist, right?

DOBBS: You're sounding like one.

ACHUTHAN: On the other hand, you have a huge amount of pent-up stimulus in the economy. And we need to see if we have some stable consumer confidence, or even rising consumer confidence, that's the catalyst that could really turn this economy up. So that's what we need to see come up out of the events that are unfolding right now.

DOBBS: I've been kind of amused throughout the day. I've listened to a number of other news organizations report on the markets and so forth, suggesting that this reaction to military strikes was why the market moved this way or that way today. What's your judgment? I cannot editorialize. I'd sure like to. What's your judgment on that?

ACHUTHAN: My judgment is that I think the market is coming to terms with the fact that we're in this global recession, they see the policy-makers with all of the stimulus being introduced, both on the fiscal and the monetary, at home and abroad. That will generate a cyclical recovery. The key to the timing of that: is it in three months, is it in four months, five months or so on, is in the laps of the consumers. If the consumers go out and spend, they have quite a bit of spending power.

DOBBS: Right. Unlike the Gulf War 10 years ago, a little better than. We're not seeing quite the same imagery we did in that -- we're not seeing all of the aircraft taking off. We're not seeing all of those strikes. We don't see General Schwartzkopf pointing at a bridge that is being struck, for example. And that may be playing into a more protracted confidence building as a result of these strikes?

ACHUTHAN: Sure. And also and this is hitting us closer to home. It's a bit different downturn, also, where it's business-led downturn as opposed to a consumer-led downturn. So there are a few similarities and a few differences that we have to work our way through.

DOBBS: But you believe the consumer nonetheless holds the key to recovery?

ACHUTHAN: Critical. If consumer goes to the store, they have lots of stimulus and support from the monetary and the fiscal policy that we've seen in the economy.

DOBBS: Your best guess as to when we'll see that recovery.

ACHUTHAN: I'd say it's going to show up by next year. I just don't know the exact timing of it. If we see the consumer come back, it comes quickly. Otherwise, we might have to wait a little while longer.

DOBBS: We'll give you two or three days. You analyze it a little more. We want an exact date.

ACHUTHAN: We'll talk about that next week.

DOBBS: Lakshman, thanks very much.