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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.

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Positive Signs?


HOPKINS: So let's begin with economist Lakshman Achuthan and also Robert Hormats of Goldman Sachs. Lakshman, you first. The economy -- you watch what's gong on in the stock market and what's going on in the economy. Are you starting to see some positive signs?

LAKSHMAN ACHUTHAN, ECONOMIC CYCLE RESEARCH INSTITUTE: Yes -- we are starting to see some positive signs -- particularly in the most frequently available leading indicators -- the weekly leading indicators. And there for about I'd say almost two and a half months now we've seen them advancing. And this is getting close -- closer and closer to not a tentative call but a real call of an upturn in the economy.

HOPKINS: Are you ready to make that call yet?

ACHUTHAN: Getting close -- we're getting pretty close. It would be hard for us not to make that call in a week or so because these indicators have persisted in their rise, it's been a pervasive rise and it's been a relatively pronounced rise.

Now an upturn in the economy in 2002 is just that -- it's an upturn from a decline. So it may be awhile until we feel like the economy has actually gotten better.

HOPKINS: And awhile before we feel the same kind of feeling we had before we went into the recession, right?

ACHUTHAN: Oh, certainly. I wouldn't -- saying that there's a cyclical upturn in the economy in 2002 is not saying that we're returning to the economy that we had in the late 90s. I think that that is a long way off.

HOPKINS: Bob Hormats -- you look at the global situation. Is the U.S. going to bring the rest of the world out of recession?

HORMATS: Well, that's certainly what the rest of the world is hoping. One thing is clear -- we're not going to export our way out of this recession because all of the other major areas of the world are in recession. Japan's in recession, a number of countries in Europe are in recession, a number of countries in Latin America are in recession.

HOPKINS: So we can't sell things to them.

HORMATS: We can't sell a lot of goods, which particularly hurts the manufacturing sector of the economy. So they're counting on us to boost our growth rate and some of these countries are hoping to export themselves out of the current recession. But so much depends on the United States at this point. I don't think our recovery is going to be robust enough to help these countries get out of recession without their own stimulative efforts to a great degree than they've done already.

HOPKINS: But you do think that the year 2002 will bring a recovery in the economy? It may be weak but...

HORMATS: I do. I think there will be a recovery by spring. Energy prices are down, a lot of refinancing of mortgages, monetary stimulus, fiscal stimulus. Inventories have been liquidated at a very rapid rate. That all helps but we have a lot of debt on the household books, a lot of corporate debt -- still over capacity. And we still have concerns about terrorism. All of them are negatives for the economy. So tough head winds but a recovery nonetheless.

HOPKINS: Lakshman, what things do you look at for the year 2002 that we should be paying particular attention to?

ACHUTHAN: Well, I think the leading indicators are telling you we will have an upturn in the economy. And I think one of the things that you can count on is that inflation will remain low because, as Bob mentions, we are in a synchronous global recession. And while we may rise first, abroad they're still contracting. So we an import dis- inflation continuing forward even though we're recovering.

And so I think that's something you can certainly count on even during a weak recovery.

HOPKINS: Thank you both -- Bob Hormats and Lakshman Achuthan.
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