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CNN Saturday Morning News

Can the Economy Avoid Recession?

Aired July 28, 2001 - 09:13   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.
BRIAN NELSON, CNN ANCHOR: It seems that the U.S. economy is barely puttering along these days. The latest government numbers are showing that growth for the second quarter of this year was at its slowest rate in eight years. But the Bush administration predicts better times are ahead next year.

Joining now -- joining us now from Washington to talk about it is Beth Belton, news editor for BusinessWeek Online. Miss Belton, thank you for being here.

BETH BELTON, "BUSINESSWEEK": Thank you, Brian.

NELSON: The figures coming out are a little confusing. We -- showing a growth in the decimal points. So I guess technically we're avoiding a recession, right?

BELTON: Absolutely. We are not in recession yet, and it's still possible for the economy to avoid a recession.

NELSON: And how strong do you think the chances are that it might fall into a recession?

BELTON: The economy is definitely not in good shape. The past 12 months, it's only grown at a 1.3 percent pace, and that's after 4 percent growth for the several years before that.

Consumers are still spending but at a much lower pace than they have in previous years, and businesses are not recovering at all yet.

NELSON: So why is this? Why is it going so slowly?

BELTON: You know, the dot-com bubble burst is still working its way through the system. The manufacturing economy is still in recession. And until those businesses clear out their excess inventories, until they work their way through their excess production capacity, they can't start to spend again.

The only hope here is for the consumer to keep spending. And if that happens, if the consumer does not get alarmed by all the ongoing layoffs, if the consumer spends the tax rebate, which Washington is counting on, if we get no unexpected shocks to the system, and if the Federal Reserve keeps cutting interest rates, which Alan Greenspan says will happen, there's hope for the economy. NELSON: Yes, but you know what's -- what -- what may be catching up with us is the manufacturing layoffs. That's starting to spread into some other areas of the economy. And so as layoffs go, consumers, for one, could be very discouraged to spend any money. Do you not see a red flag in that?

BELTON: There is a lot of layoffs going on right now. What we have to remember is that the unemployment rate is still historically at a very low level. It's only a 4.5 percent. It has risen very rapidly the past few months. It was below 4 percent last fall.

But the layoffs are not going to make the unemployment rate jump anywhere near where it usually is during a recession.

NELSON: So you don't -- you're not of the belief that something has to happen positively in the economy in the next two to three months in order to provide a psychological jolt for both manufacturers and to reassure consumers that things are not getting any worse?

BELTON: No, I think it will help if the market holds up, which it has, during a very, very ugly earnings season, which is starting to wind down. I think if the Fed continues to cut interest rates, which it has said it will do, and it can do, since inflation is very low. And I think if consumers don't get spooked, if they aren't alarmed any more than they already are, they will keep spending, and they can hang in there until businesses can start their spending again.

NELSON: Let me ask you about two other factors, and they impact this, the state of economies overseas, and the decision by OPEC to raise the price of oil, which is going to start showing up -- I think economists are saying probably not until the fall, but that's going to put additional pressure on the economy. What do you think about both of those?

BELTON: The rising energy prices is definitely a red flag. We've just gone through some very ugly high energy prices in the past year. We've gotten a break in the past few months. And that would definitely put some additional pressure on the economy. And it also stands in the way of the Fed being able to cut interest rates.

The global economy is not in good shape at all. There are a variety of countries around the world that are already in recession with very little sign of recovery in the near term. They in fact are counting on the U.S. economy not to go into recession so that they can keep shipping their products over here, our consumers keep buying them, and we can keep the global economy from dipping into a widespread recession.

NELSON: So I think you and other economists are looking for Alan Greenspan to give us another interest rate cut. The fact that inflation is as low as it is is probably going to allow him to do that, I guess?

BELTON: Yes. He appeared on Capitol Hill this past week, and he was very straightforward, which he isn't always. And he made it quite clear that there are more rate cuts coming, and that the Fed is able to do that.

NELSON: All right, well, we'll keep waiting and watching throughout the fall into the new year, hoping for some good news. Thank you for being with us, Beth Belton from BusinessWeek, appreciate it.

BELTON: Thank you, Brian.

NELSON: All right.

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