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Jewish World Review April 30, 2002 /18 Iyar, 5762

Mort Zuckerman

Mort Zuckerman
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Consumer Reports

Roller-coaster nation | Surprise, surprise-and surprise again. That's the story of the American economy. Who wasn't utterly astonished by the astounding boom of the 1990s? It was the longest economic expansion in our history with the highest level of growth and booms in capital spending, the stock market, productivity, and employment, all accompanied not by the familiar bogeyman of accelerating inflation but by its decline. And who wasn't poleaxed by the swiftness of its reversal, triggered by the seemingly overnight collapse of capital spending? Absent the impetus of a collapse in consumer spending, it was the first time in a century that America had seen anything like it.

What happened? Oh, just a few things. CEOs, it seems, were stunned when the bubble of expected profits burst, taking their biggest tumble in 50 years. Investors were likewise jolted by a stock market crash that inflicted a mere $5 trillion hit in values.

Most of us braced for more and worse. What we got, happily, was less and better. Virtually no one saw that the recession would last a measly three months. That's the shortest downturn since World War II, and it was accompanied by just a modest rise in unemployment, peaking, so far, at just under 6 percent. That's well below past recession highs like the 10.8 percent jobless rate in the 1981-82 downturn. The surprise-a nice one, this time-was the consumer boom, particularly in housing and autos. It kept the economy chugging along despite the series of shocks culminating in the worst assault on America's psyche since Pearl Harbor, to wit, September 11. Nobody fully appreciated the effect of the increases in wages, real-estate values, and stocks before the downturn. Since 1996, those increases made American households 20 percent richer on average. On top of that, we have last year's lower mortgage rates, lower energy costs, tax cuts, home refinancings, and retailer discounts. Foul weather or fair, Americans just couldn't resist the bargains.

Eye on the prize. Perhaps most astonishing has been productivity. It was up over 5 percent in last year's fourth quarter and about 6 percent in this year's first quarter, compared with declines in the last three recessions. In fact, since the official start of the recession, in March of last year, productivity has been growing at an annual rate of 2.7 percent compared with the previous 50 years, which experienced declines on average during downturns of 0.6 percent. Reduced labor costs allowed many companies to respond to falling demand without the usual unpleasantness of mass layoffs. A new phenomenon-temps, who now make up 2 percent of the workforce-accounted for 30 percent of the resulting unemployment. There is also an untold story of managerial triumph: Managers made good use of new technology, using real-time information provided by systematized and computerized order tracking and inventory control to accelerate revisions in production schedules, work shifts, and capital and marketing budgets to meet reduced demands.

The prize for the quickest reflexes should go to the Federal Reserve Board. The only central bank in the world able and willing to react with such alacrity, the Fed literally began cutting interest rates before the recession officially began, maybe for the first time in the history of monetary policy anywhere. Now it's much less likely the Fed board will raise rates anytime soon or boost them very much. With little inflation, Fed Chairman Alan Greenspan has indicated that he is committed to a policy of waiting for a sustained, solid expansion.

So with the economy growing much faster this year than anyone expected, can we project where we're going? Not quite. People who write about the economy are a lot more optimistic about it than the people who write the checks. Business is worried that the economy's strength is due to a one-time shot in the arm provided by inventory rebuilding. That won't carry us through the second half of the year, and the consumer is already overspent on housing and autos. With so much debt and so little savings, consumers have little capacity for a fresh burst in spending.

The key to sustaining the recovery, of course, is capital spending. But with corporate debt at a record high, most companies just won't spend on capital or large-scale hirings until they see a restoration of their bottom line. And that means profits. Yes, it may have been a mercifully brief recession, but profits plunged 28 percent over its course. Most companies feel they have little pricing power to lift profits. Another note of caution lies in the dramatic contraction of business advertising in major business pub- lications like Forbes, Fortune, Business Week, and the Wall Street Journal, which has dropped over 50 percent over the past 18 months. So, going forward, as they say, the only surprising thing will be if we are confronted with no new surprises.

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JWR contributor Mort Zuckerman is editor-in-chief and publisher of U.S. News and World Report. Send your comments to him by clicking here.


04/25/02: A critical tipping point
04/15/02: Israel's endgame will impact the free world
03/21/02: In the face of pure evil
03/14/02: A man on a mission
03/07/02: Land of the Sinking Sun
02/12/02: Speaking truth about energy
01/15/02: Putting our house in order
01/12/02: Talking points for 2002
12/24/01: The shape of things to come
12/11/01: Finally, a clarity of vision
12/04/01: Apocalypse now
11/26/01: The Big Apple's core
11/06/01: What it will take to win
10/22/01: Getting the mayor's message
10/08/01: A remedy for repair
10/01/01: A question of priorities
09/26/01: Our mission, our moment
09/11/01: Running the asylum
08/29/01: Hail, brave consumer
06/14/01: Blackouts --- or blackmail?
06/01/01: A time to reap --- and sow
05/25/01: A question of confidence
05/18/01: A question of confidence
05/04/01: Making the grade
04/26/01: The caribou conundrum
04/19/01: Chinese boomerang
03/27/01: The man of the moment
03/20/01: The Fed must be bold
03/15/01: Japan on the brink
03/01/01: Rethinking the next war
02/09/01: The education paradox
01/08/01: How the bottom fell out
01/03/01: Quipping in the new year
12/20/00: A time for healing
11/13/00: The need for legitimacy
10/30/00: Arafat's bloody cynicism
10/18/00: Arafat torches peace
10/03/00: A great step backward
09/08/00: The Perfect Storm
08/29/00: Don't blow the surplus
08/15/00: Voting for grown-ups
08/01/00: Arafat's lack of nerve
07/17/00: Can there be a new peace between old enemies? Or will new enemies regress to an old state of war?
07/11/00: A time to celebrate
06/19/00: A bit of straight talk
06/08/00: Using hate against Israel
05/26/00: Is the Federal Reserve trigger-happy?
04/18/00: Tensions on the 'Net
04/13/00: A paranoid power
03/10/00: Fuel prices in the red zone
02/25/00: Web wake-up call
02/18/00: Back to the future
01/21/00: Whistling while we work
01/11/00: Loose lips, fast quips
12/23/99: The times of our lives
12/14/99: Hey, big spender
11/18/99: Fountain of Youth
11/04/99: An impossible partner
10/14/99: A nation divided
10/05/99: India at center stage
09/21/99: Along with good cops, we need a better probation system
09/08/99: Though plundered and confused, Russia can solve its problems
08/31/99: The military should spend more on forces and less on facilities
08/05/99: Squandering the surplus
07/06/99: More than ever, America's unique promise is a reality
06/24/99: The time has come to hit the brakes on affirmative action
06/15/99: America should take pride in honoring its responsibilities
06/02/99: The Middle Kingdom shows its antagonistic side
05/11/99: Technology's transforming power is giving a lift to everything
05/04/99: The big game gets bigger
04/30/99: On Kosovo, Russia talked loudly and carried a small stick
04/21/99: No time to go wobbly
04/13/99: The Evil of two lessers

© 2001, Mortimer Zuckerman