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American Morning

What's In Store for the Markets and Consumers in 2002?

Aired December 31, 2001 - 08:50   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.
LEON HARRIS, CNN ANCHOR: You know to the year 2001 has been a tough one for Wall Street with the economic downturn we've all seen and then September 11 affected traders badly as well. Well what about 2002?

CNN's Kathleen Hays takes a look at what economic forecasters are predicting for next year.

(BEGIN VIDEOTAPE)

KATHLEEN HAYS, CNN FINANCIAL NEWS CORRESPONDENT (voice-over): 2001, a rough year for investors. Stocks fell for the second straight year and worker suffered losses in their 401(k)s for the first time ever. U.S. companies cut 1.8 million workers as profits fell. And an unthinkable act of terror pushed a struggling economy over the precipice into recession. But as the year draws to a close, most economists sniff recovery in the air.

(BEGIN VIDEO CLIP)

DAVID WYSS, STANDARD & POOR'S: I think the economy will have at least one more quarter of negative growth, but sometime in the first quarter, we ought to bottom out and start coming up again. And second half of next year, I actually think we're going to have a pretty darn strong recovery.

(END VIDEO CLIP)

HAYS: Eleven Federal Reserve rate cuts in 12 months are expected to give businesses the fuel needed to start investing again. That, along with billions of dollar pledged to rebuild and repair after the September 11 attacks and fight the war on terrorism. This is crucial.

A drop in business spending that occurred after the high-tech bubble burst in 2000 is what led the economy lower. Now new spending on computers and other business equipment is expected to lead it higher. And automakers are expected to boost output. Zero percent financing caused sales to soar, and now auto dealers need to rebuild inventories on the lost.

DAVID RESLER, NOMURA SECURITIES: We don't have to have a big burst in spending to start prodding some production. And as production starts to kick up, employment picks up and then more people go back to work, more people have money to spend, and we're back on a growth path again.

HAYS: Unlike past recessions, the American consumer kept buying cars and houses throughout the recent downturn. For the recovery to stay on track, consumers must keep on buying now. But what if they don't?

(BEGIN VIDEO CLIP)

JOHN RYDING, BEAR STEARNS: If the consumer decides to pull in somewhat defensively in 2002, if some of the sales that we've seen in the automobile industry have come at the expense of sales next year, we could see a weak consumer environment for the first half of the year, and that could precipitate another leg to the downturn.

(END VIDEO CLIP)

HAYS: Consumer confidence has rebounded from the September 11 attacks, but is not yet back to levels seen this past summer. And one big worry is that another incident or a setback in the war against terror could send it spiraling lower.

Another risk to consumer sentiment, that companies may keep laying off workers.

(BEGIN VIDEO CLIP)

MAUREEN ALLYN, ZURICH SCUDDER INVESTMENTS: I think unemployment is going to continue to creep up. I'm actually looking for positive growth in the second quarter next year. It might even happen in the first. I mean I think we're really close to the end of this -- of the decline. But will it feel very good? I don't think so.

(END VIDEO CLIP)

HAYS: If unemployment keeps rising, economists say we may see a tepid economic recovery, a recovery where the economy limps rather than roars back.

(on camera): The bad news, this may restrain corporate profits and keep a tight rein on the stock market. The good news, it will also help keep inflation low and that helps prevent interest rates from rising and that means home buyers and mortgage refinancers can continue to get good rates.

Kathleen Hays, CNN Financial News, New York.

(END VIDEOTAPE)

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