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Fed's Beige Book Shows Conflicting Signals in Economic Recovery
Aired April 23, 2003 - 15:22 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.
JUDY WOODRUFF, CNN ANCHOR: More news on your money this hour. The Federal Reserve this afternoon released what is known as the Beige Book. That's a report on the nation's business conditions.
According to the report there have been scattered signs of economic improvement around the country, but, quote, "the pace of economic activity continued to be lackluster during March and the first two weeks of April."
This Fed report adds to the conflicting signals found in other key economic indicators. Consumer confidence dipped slightly in March as the unemployment rate held steady at 5.8 percent. Housing starts jumped more than 8 percent, while car and light truck sales were down 1 percent.
Well what do all these member numbers mean to the overall economy? With me now from Chicago is Diane Swonk. She is chief economist at bank one and she's the author of "The Passionate Economist."
I'm also joined by Jennifer Openshaw. She's the founder of the Women's Financial Network and the author of "What is Your Net Worth?"
Diane Swonk, to you first. Anything surprising in this new Beige Book report out from the Federal Reserve?
DIANE SWONK, CHIEF ECONOMIST, BANK ONE: No, not really. At this stage of the game, you know we're still siphoning through not only the prewar jitters that we saw which saw some paralysis in (UNINTELLIGIBLE). I call it sort of Iraq-nophobia out there.
And also the real cost of higher oil prices. But also the SARS jitters and everything we've seen since then. And we haven't really had enough time to get past the war yet to see what's left after it, in terms of, was it a lot of it war related? And now that oil prices are coming down, will we see some spring back into the economy? Or is it more like just a slow, steady pace back on the economy?
We've seen profits come back, early earnings reports actually much better than people expected. Yet the stock market hasn't taken off as much as it could have. We've seen, you know...
WOODRUFF: Well, I want to get into some of those specifics with you. But let me quickly turn to Jennifer Openshaw and ask you, what about these apparently conflicting numbers that we see? We see unemployment holding steady. We see the -- unemployment steady, but we see housing starts going up. What numbers should the ordinary consumer and American pay attention to?
JENNIFER OPENSHAW, Well, I think they certainly should pay attention to the stock market. And the good news is that the Dow losses for the year are up because this really plays on investors' psychology and it affects what kind of spending they're participating in the market, etc.
We're also paying attention to the housing economy. Interestingly, though, more people are taking out home equity lines of credit. And in certain parts of the country, we're seeing that some people are having a hard time paying off that debt. We're not seeing it across the country, but we are seeing it in parts of the country and we may see that consumers have a tougher time in the months ahead.
WOODRUFF: So pay attention to the stock market.
Diane Swonk, you mentioned the war in Iraq. Is it too early to know what effect it's going to have on the economy?
SWONK: Well it's still a little bit early although we do know already pump prices at the gas pump have come down quite dramatically last week. They are running at the levels we've not seen, the lowest levels since February, still up from a year ago, but still coming down. Iraq is beginning to produce oil.
And in fact OPEC is holding back on production -- on lowering -- or increasing their production caps right now because they are worried about a glut of oil that's going to come on the market by the time we get through the summer months and sort of the seasonal change as we see in oil consumption. So I think we're going to see some good news out there coming in terms of lower oil prices, giving more spending power to consumers.
But we are seeing, as Jennifer has said, some pockets of weakness across the country, some regional pockets. Particularly some of those pockets where in-migration was a major factor, like Arizona, Colorado. Also places where tourism has played very high. There's no question one of the casualties, as you mentioned earlier, of wars -- the war and SARS and the fear of terrorism, frankly, since 9/11 has been the airline industry. But...
(CROSSTALK)
WOODRUFF: And, Jennifer, to you again. Going forward what should people be paying attention to and what is on -- I mean, if somebody comes to you and says, what do you think the economy is going to be looking like in the months to come, what do you say to them?
OPENSHAW: Well I agree with Diane that we do have some good news that's coming out with the end of the war, etc. The market looking like it's going to pick up a little bit. But I think that people need to think much more defensively about their finances. This isn't, you know a couple of years ago where things were looking good. And I think people now need to reign back in their spending. I think they need to be saving much more regularly than they have been. Fifteen percent of consumers have not saved at all and only 50 percent have $50,000 dollars saved.
And I do think that while many people have cash in the sidelines of the market, they need to remember that bond rates, prices will probably come down when rates go up. That the equity markets are at an all-time low. It is a good time to get in the market. But I am suggesting to people that they first of all diversify their portfolio, and they might think about, Judy, some other (UNINTELLIGIBLE), for example, some other asset classes.
WOODRUFF: All right. Much to think about. Jennifer Openshaw, Diane Swonk, good to see both of you. Thank you for talking with us as we try to figure out what to pay attention to among all these conflicting signals. Good to see you, thanks very much.
TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com
Recovery>
Aired April 23, 2003 - 15:22 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
JUDY WOODRUFF, CNN ANCHOR: More news on your money this hour. The Federal Reserve this afternoon released what is known as the Beige Book. That's a report on the nation's business conditions.
According to the report there have been scattered signs of economic improvement around the country, but, quote, "the pace of economic activity continued to be lackluster during March and the first two weeks of April."
This Fed report adds to the conflicting signals found in other key economic indicators. Consumer confidence dipped slightly in March as the unemployment rate held steady at 5.8 percent. Housing starts jumped more than 8 percent, while car and light truck sales were down 1 percent.
Well what do all these member numbers mean to the overall economy? With me now from Chicago is Diane Swonk. She is chief economist at bank one and she's the author of "The Passionate Economist."
I'm also joined by Jennifer Openshaw. She's the founder of the Women's Financial Network and the author of "What is Your Net Worth?"
Diane Swonk, to you first. Anything surprising in this new Beige Book report out from the Federal Reserve?
DIANE SWONK, CHIEF ECONOMIST, BANK ONE: No, not really. At this stage of the game, you know we're still siphoning through not only the prewar jitters that we saw which saw some paralysis in (UNINTELLIGIBLE). I call it sort of Iraq-nophobia out there.
And also the real cost of higher oil prices. But also the SARS jitters and everything we've seen since then. And we haven't really had enough time to get past the war yet to see what's left after it, in terms of, was it a lot of it war related? And now that oil prices are coming down, will we see some spring back into the economy? Or is it more like just a slow, steady pace back on the economy?
We've seen profits come back, early earnings reports actually much better than people expected. Yet the stock market hasn't taken off as much as it could have. We've seen, you know...
WOODRUFF: Well, I want to get into some of those specifics with you. But let me quickly turn to Jennifer Openshaw and ask you, what about these apparently conflicting numbers that we see? We see unemployment holding steady. We see the -- unemployment steady, but we see housing starts going up. What numbers should the ordinary consumer and American pay attention to?
JENNIFER OPENSHAW, Well, I think they certainly should pay attention to the stock market. And the good news is that the Dow losses for the year are up because this really plays on investors' psychology and it affects what kind of spending they're participating in the market, etc.
We're also paying attention to the housing economy. Interestingly, though, more people are taking out home equity lines of credit. And in certain parts of the country, we're seeing that some people are having a hard time paying off that debt. We're not seeing it across the country, but we are seeing it in parts of the country and we may see that consumers have a tougher time in the months ahead.
WOODRUFF: So pay attention to the stock market.
Diane Swonk, you mentioned the war in Iraq. Is it too early to know what effect it's going to have on the economy?
SWONK: Well it's still a little bit early although we do know already pump prices at the gas pump have come down quite dramatically last week. They are running at the levels we've not seen, the lowest levels since February, still up from a year ago, but still coming down. Iraq is beginning to produce oil.
And in fact OPEC is holding back on production -- on lowering -- or increasing their production caps right now because they are worried about a glut of oil that's going to come on the market by the time we get through the summer months and sort of the seasonal change as we see in oil consumption. So I think we're going to see some good news out there coming in terms of lower oil prices, giving more spending power to consumers.
But we are seeing, as Jennifer has said, some pockets of weakness across the country, some regional pockets. Particularly some of those pockets where in-migration was a major factor, like Arizona, Colorado. Also places where tourism has played very high. There's no question one of the casualties, as you mentioned earlier, of wars -- the war and SARS and the fear of terrorism, frankly, since 9/11 has been the airline industry. But...
(CROSSTALK)
WOODRUFF: And, Jennifer, to you again. Going forward what should people be paying attention to and what is on -- I mean, if somebody comes to you and says, what do you think the economy is going to be looking like in the months to come, what do you say to them?
OPENSHAW: Well I agree with Diane that we do have some good news that's coming out with the end of the war, etc. The market looking like it's going to pick up a little bit. But I think that people need to think much more defensively about their finances. This isn't, you know a couple of years ago where things were looking good. And I think people now need to reign back in their spending. I think they need to be saving much more regularly than they have been. Fifteen percent of consumers have not saved at all and only 50 percent have $50,000 dollars saved.
And I do think that while many people have cash in the sidelines of the market, they need to remember that bond rates, prices will probably come down when rates go up. That the equity markets are at an all-time low. It is a good time to get in the market. But I am suggesting to people that they first of all diversify their portfolio, and they might think about, Judy, some other (UNINTELLIGIBLE), for example, some other asset classes.
WOODRUFF: All right. Much to think about. Jennifer Openshaw, Diane Swonk, good to see both of you. Thank you for talking with us as we try to figure out what to pay attention to among all these conflicting signals. Good to see you, thanks very much.
TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com
Recovery>
