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CNN Live Saturday

How Bad Was the Recession and is it Really Over?

Aired March 02, 2002 - 22:20   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
JEANNE MESERVE, CNN ANCHOR: For some people in some sectors of the economy, this was the recession that never really was. In fact, most Americans managed to survive and even thrive during the last year.

CNN's Brooks Jackson reviews the numbers.

(BEGIN VIDEOTAPE)

BROOKS JACKSON, CNN CORRESPONDENT (voice-over): What kind of a recession is this? Cosmetic surgery is absolutely booming. More face lifts more breast enlargements, lots more wrinkle removing botox injections. Overall, 48 percent more procedures last year than the year before.

Vanity is expensive. Practically none of this is covered by health insurance. Americans still have the money.

And how about this? Sales of motor homes are picking up. One manufacturer of those $150,000 fuel sucking land yachts, Winnebago, racked up record sales last year and just announced it's building a new factory to accommodate rising demand. Overall, motor home sales were up near 11 percent in December, compared to a year earlier. What's going on?

(on camera): The happy fact is there's increasing evidence the recession is over and that it was one of the mildest on record.

(voice-over): Though manufacturing lost more than a million jobs, dotcom and telecom bubble blew up on Wall Street, the travel industry was creamed by September 11. And now, Enron. But the U.S. economy is bigger than all that.

Truth is, the vast majority of Americans have quietly been doing just fine, spending more on things like dining out. The restaurant business improved last year, despite everything. Up nearly 1 percent, after inflation. And full service restaurants are growing faster than fast food joints.

And get this, sales of real yachts are up, too. Bigger, more expensive boats, and more of them. With prices averaging $342,000 each, the number of big in-board cruisers sold last year was up better than 1 percent. Some recession. (on camera): In most recessions, personal income goes down. But in this one, income per person, after inflation and after taxes, has continued to grow. This big blip last year was the $300 per person income tax cut, paid in advance.

(voice-over): But even in December, after those Treasury checks stopped coming, disposable income per person was half a percent higher than a year ago. 3.7 percent higher than two years ago, five percent higher than three years ago.

In the recession of 1982, unemployment hit 10.8 percent. This time, it peaked at just 5.8 percent, before heading down last month. So the worst is probably over, but historically speaking, it wasn't all that bad.

Brooks Jackson, CNN, Washington.

(END VIDEOTAPE)

MESERVE: Of course, there are those who have felt the impact from the struggling economy. For a closer look at the economy and whether the recession is really over, I'm joined by Ric Edelman, a financial planner from Edelman Financial Services.

Ric, first, let's start with the basics. For those of us who slept in, instead of going to Economics 101, what's the official definition of a recession?

RIC EDELMAN, EDELMAN FINANCIAL SERVICES: Well, it depends who you talk to. There are really three different definitions. The official legal definition is prescribed by about half a dozen guys, and they are all guys, who sit around and make a conference call to each other, when they think that a recession has started as a result of economic data coming up from the government.

They said a few months ago that we were in a recession. And about a few weeks ago, they have now announced we're no longer in a recession. But Wall Street has its own definition. If there's a declining GDP over six months, Wall Street says we're in a recession. That has happened.

And then, the final definition is your neighbor. If he's out of a job, he's in a recession. If you're out of a job, you are.

MESERVE: So does Ric Edelman agree with those eight guys on the conference call? Did we have a recession? Is it over?

EDELMAN: Yes, we had a recession. And I do believe it's over. Wall Street is beginning to agree with that as well. And that's why the stock market has been so giddy the past couple of days.

MESERVE: What's ahead? Are we going to see more layoffs, do you think?

EDELMAN: Probably not nearly as severely as we've seen in the past six or eight months. There may be some few yet to come, but I do believe the worst of it is over. Chances are if you have not lost your job by now, you probably won't.

MESERVE: But what if you have lost your job and you need a new one? Are you going to be able to find it quickly?

EDELMAN: I don't know about quickly, but the prospects for getting a new job are better than they were a few months ago. And they're going to continue to get better over the next few months. Brighter days will eventually be here again.

MESERVE: I would imagine, Ric, that different sectors of the economy are going to rebound differently. What can you predict in terms of different portions of the economy?

EDELMAN: Well, I think those that are in the high tech sector are going to continue to see the slump for some time to come. Venture capital has all but dried up in those sectors. And it still remains overpriced in a lot of important ways. So I don't think we're going to see any major improvements there.

We should see improvements in the manufacturing sector, because inventories have been depleted to a certain degree over the past several months. The banking and the financial services sectors should also begin to rebound, as the overall economy does. So I think we'll fundamentally see the tourism and housing and retail sectors improving along as well. It should be a pretty broad recovery.

MESERVE: As Brooks pointed out, a lot of people didn't seem to feel the effects of this recession at all. Why, exactly, was this recession apparently so light?

EDELMAN: I think there's one overriding reason. And we can, in large part, thank Alan Greenspan for it. Declining interest rates boosted the real estate market. The real estate industry stayed OK. Housing prices did not fall. In fact, in many areas, housing prices continued to rise. That supported everybody's equity in their homes. And they were able to tap into it, to buy the cars that they used to buy with stock profits, they were able to buy with their housing prices. And that has been the savings grace in this recession.

MESERVE: OK, let's get down to the real issues now. What does someone do with their money in an economy that looks like this one? Do you put it in the market?

EDELMAN: Absolutely. Now is the time to buy. I'm not sure prices are going to stay where they are right are for the long term. I'm not sure when the true recovery in the stock market's going to occur. But it is around the corner. And if you wait, you're probably going to miss it. So now's the time to buy, even though it might be premature by a few months, maybe even several months, but if you wait, you, chances are, are going to miss it. And you'll wish you got in today.

MESERVE: What do you say to those edgy investors who look at what happened with Enron and are afraid it could be more widespread?

EDELMAN: It could be. There are two potential problems on the horizon. One is more Enrons. Who else is playing games with their accounting? And we don't know about it yet. And second, of course, the war. So because of those two things, we still have a lot of uncertainty out there. How do you protect yourself? It's easy. Buy a little bit of everything. Don't make big bets anywhere. Don't let yourself get set up, where one bad piece of information can wipe you out. That's what happened to the employees of Enron. Make sure that doesn't happen to you.

MESERVE: Again, in this economy, any investments to absolutely stay away from?

EDELMAN: I'm still not excited about the tech sector. And if you're going to invest in high tech stocks or dotcoms, you had darned well better do so, only after extensive personal research. Don't listen to the pundits. You never know if they're right or wrong, or even if they're telling you everything they know.

And second, make sure you're highly diversified. And don't put a lot of eggs in any one basket.

MESERVE: OK, Ric Edelman, thanks so much for joining us from Atlanta tonight.

EDELMAN: Thank you.

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