Danger: Yelling fire in a jittery economy

By John Cunniff The Associated Press
Friday February 16, 2001

NEW YORK — Terrified voices have been heard shouting “recession” in the already jittery economy – it doesn’t really matter who they are – and soon they had crowds running for the exits. 

The guilty list, if that’s what it is, might include Alan Greenspan of the Federal Reserve, the publishers of confidence surveys, and the purchasing managers who do the buying for industrial companies. 

It really doesn’t matter very much who shouted first – now everyone has recession on the brain. People are looking for gloomy omens of trouble rather than bright signs of success. 

Last week, the big topic was recession; everyone, so to speak, was talking about it. And the danger, Greenspan suggested, was that consumers would be drained not just of buying power, but of buying confidence, too. 

Subtle differences of interpretation can have great consequences. 

Yes, the surveys of consumer and business confidence showed declines, sharply in some instances, but it seemed to matter little that confidence levels remained historically high. And if might still surprise some people to realize that consumption spending actually climbed in December. 

The same phenomenon can be observed in homebuying, the very largest investment most families ever make. December new-home sales were at an annual rate of 975,000 units, very little changed from the best of times. 

An impression exists that technology, a hefty supporter of the economic boom, has now sunk into the doldrums. But according to Dataquest, which compiles industry statistics, December sales of powerful computer servers, as used in the Internet, soared 21 percent over the December 1999 pace. 

None of this proves that overall economic growth isn’t slowing, or that many companies aren’t laying off workers in massive numbers, especially in manufacturing, and that others aren’t distressed and fearful. Neither does it prove that the economy can’t fall into recession. 

It does mean that the bottom hasn’t fallen out, that the worst-case scenarios can’t yet produce the evidence, that recession isn’t a certainty, and that recessions, if they come, need not be deep and long. 

A slowdown, in fact, can be a remedy for an economy that is stressed and strained after an exhausting marathon run. 

The power shortages, for example, are perhaps an example of poor management, but they are also a consequence of a surge of economic growth that caught planners off guard. Who could have foreseen the boom in Silicon Valley? And during a slowdown, defenses can be raised. 

The Federal Reserve has all but promised immediate relief via lower short-term interest rates. Technological progress has kept inflation at bay. The Bush administration seems likely to obtain tax reductions. Good reasons to calm the excitement. 

John Cunniff is a business  

analyst for The Associated Press