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.



What to Watch for Recovery

LAKSHMAN ACHUTHAN, ECONOMIC CYCLE RESEARCH INST: Well, this is a key mechanism that generates a recession. We have job losses and incomes go down and sales goes down and production goes down and this whole spiral, and what is a recession, and that is why the policy maker can't wave a wand and say it will go away. They have no control over this; it is the Achilles heel as it were of the free market economy.

This is a great system and this is the one weakness when the downward spiral gets under way. So even if you don't lose your job, and most people are working, right? This starts to impact you. Your psychology and you pull back a little bit and because you are a little weary and you are not as carefree as you were because you know somebody who lost their job, and things that are discretionary in particular come under pressure. The affordable luxuries. Your latte from Starbucks maybe a little too, too much of a frivolous thing right now and you go for the deli, coffee at the deli.

ROMANS: A couple of career experts were telling me earlier this week that this is not the time to be telecommuting everyday of the week and not the time to hang away. And this is the time to hang around the printer and talking to your boss and doing networking and making sure that you are seen. Let me ask you, Peter, if you have the job in your industry, what is the feeling out there about how much more job loss we are going to have and how deep it will be and are hiring managers are under a lot of pressure to cut the bottom 10 percent? What is happening out there?

PETER MORICI, UNIV. OF MARYLAND SCHOOL OF BUSINESS: Well, if we look at the job numbers in the context of the other numbers. Retail sales falling since Thanksgiving and industrial production has been slacking off. The only thing that is really strong right now is the government and those areas that tend to be more immune and in particular health care.

Right now the job market is poor. If you want to switch jobs, you will find that that 80,000 number is bigger than it look, which will mean it is hard to switch jobs or that it will improve your circumstances and negotiated position with regard to wages is very poor. If you are in certain segments of the economy like manufacturing here in these Bush years, manufacturing has shed 3.7 million jobs.

ROMANS: And those are good paying jobs, right, peter? The jobs that we are adding are like hotel workers and food services. So health care workers pay well, but some don't.

MORICI: Well, where are we losing them? Construction and manufacturing with which is where traditionally the front line workers go to accomplish middle-class status. It is a terrible situation.

ACHUTHAN: And you see what is pushing us and tipping us into recession and what happened right? We were cruising along, we were mottling along and what happened? Well, what happened is that the nonfinancial services sector which is like the secret weapon of the U.S. economy, where 5 of 8 of us work went into a sharp downturn so you are seeing in the numbers today and Friday's numbers that you are seeing that business services, and these are like really good solid jobs, we are losing those, and that is a big shift in the makeup of this jobs report.

MORICI: Well, Peter, I want to point out, if I can, this is not a natural dynamic in the economy. We have had a large and growing trade deficit in recent years and we have chosen to deal with it by having people borrow out of money to keep the consumption up, and the borrowing has run out and the banks have essentially collapsed and public policy has something to do with it. It is allowing lack of regulation in banking industry.

VELSHI: So since I have elevated you to president, tell us what the presidential candidates should do and what policy changes should we make at this point to help Americans down the road next year and two years and five years.

MORICI: Well, the best thing we can do is reducing the trade deficit and get the value of the dollar and the yen more balanced and if not, cancel the transactions. The banks can't go into the bond market to bundle the mortgages they made into securities because the fixed income investors don't trust them.

ACHUTHAN: And another aspect here is that everybody is focusing on what, what are you going to do? Give me more money or regulation and do that, so that is missing the point. The big issue here is timing. When a business cycle recession is eight months' long and the debate on what to do about it is six months' long, you missed the wave. OK. That is the issue.

These guys, and this is a nonpartisan comment, it is the administration and Congress and the Fed. Everybody dawdled when the turning point was occurring and as a result instead of preventing a recession and when recessions happen, things that are bad get worse. So housing downturn gets worse and companies on the edge that are going to fail, they tend to fail.

VELSHI: Right.

ACHUTHAN: So this is a very expensive waste of moment of time here.

VELSHI: It has to be done now.

ACHUTHAN: And yeah, the stimulus package is going to be a little blip where it could have avoided the recession, and now it does a gentle mitigation of it.

ROMANS: Bottom lines both of you, more job losses ahead? Will we see more job losses, Peter?

MORICI: Absolutely. We are headed for a very bad year. Bernanke was saying that perhaps we will have some negative growth the first half. We will have negative growth the first half, but the question is how much longer does this continues and if he can't get the banks fixed, we will have job losses through the year.

ACHUTHAN: Yes, and you have to look at the leading indicator and one leading indicator is stimulus and we see it pushing to the upside so eventually it will turn, but we need to see the corporate profits turn and housing development, and consumer and investment psychology improving. VELSHI: And a point that Peter made earlier is that people turn to the consumer and manufacturing jobs to get themselves into the middle-class and we will come back later on with a specific discussion if you are in that industry, what do you have to look at.

ROMANS: And thank you.