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CNN Live Sunday

What's Next for U.S. Economy?

Aired December 02, 2001 - 16:46   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.
DONNA KELLEY, CNN ANCHOR: By now, most of you realize that the U.S. economy is in a recession, it is official, and that a bear market is bad news for your portfolio. Generally, it becomes official when a given index closes at a level at least 20 percent below its last closing high.

The latest figures show that the Dow needs a 9.5 percentage point increase to recover from a bear market. The NASDAQ needs a 28 percent boost.

So, what's next for the U.S. economy in the middle of a war on terrorism and a recession? Let's go to Washington and Knight Kiplinger. He is CEO of the Kiplinger Organization, that's a financial medial outlet.

Knight, good to have you join us. Hi.

KNIGHT KIPLINGER, THE KIPLINGER ORGANIZATION: Nice to be with you, Donna.

KELLEY: How much does the war play on market?

KIPLINGER: Well, in the last few weeks, good progress in the war of Afghanistan has accounted almost single-handedly for the large rise in the market. There hasn't been any significant economic news that could cause investors to be bullish.

Remember, however, that stock markets are a leading indicator. They normally begin an upward move, a sustainable upward move, six or more months before the economy begins to grow again.

KELLEY: And have we seen that?

KIPLINGER: We're beginning to see it. I think the downside risk in the stock market is very little right now. I don't think we're going to return to those lugubrious levels that followed the tragedy of September 11th, but it's going to take a significant improvement in corporate earnings, which after all underlies all value in stocks, before we see the beginning of a real upward movement.

KELLEY: You actually think even though low is not a word that most of us like to associate with the market, you actually think that three lows will help put things back on track. KIPLINGER: Indeed. When you look at the economy, the three lows, low interest rates, low energy prices, and very lean and low inventories, these are the things that will bring the U.S. economy out of recession over the next six months or so, especially those low inventories.

Remember, the recession was caused, and I mean that literally, the contraction of the economy was caused by the tragedy of September 11th.

KELLEY: Well, I thought that worsened it, though. I thought officially they said it started in March, the panel said it started in March and then the September 11th attacks just deepened it.

KIPLINGER: I know the Bureau of Economic Research prefers to use that March date for the start, but to me, if gross domestic product, the total value of goods an services in the economy, is growing, than you're not in recession. So, I like to use the GDP figure which first contracted by one percent in the third quarter with about 19 days of that third quarter coming after September 11th.

In the year-and-a-half before the tragedy of September 11th, the U.S. economy was growing very slowly, but it was growing. So, I personally don't date a recession from anything except the beginning of an actual contraction, a decline, and that was in the third quarter.

KELLEY: What helps jump start this and get going? Is it the economic stimulus bill that could help, and how so? Or in addition to your three lows that you just talked about, what do you see coming down the track here?

KIPLINGER: A lot of people around Washington are saying there won't be an economic stimulus, that the impasse is intractable, that the deadlock is impenetrable. I disagree. I think that Congress will not dare go home for the Christmas break empty-handed, come home and say we could not put partisan politics aside, we could not reach an agreement.

I think they will agree to disagree, they'll have something for everybody. The Democrats will get a lot of the relief for the unemployed, the expanded unemployment benefits, help with health insurance premiums for the unemployed, a tax rebate of some sort, especially for low-income households. And the Republicans will get a lot of their wish list of business tax breaks, higher expensing of capital purchases by small business, accelerated depreciation for large businesses, perhaps some relief from the alternative minimum tax.

There will be something for everybody in this stimulus package, and it will work. It will not kick in, of course, until sometime early next year.

KELLEY: That's just what I was going to ask you. You think about six months down the road? I've heard you say six months ahead with the market. You think six months more of more recession? KIPLINGER: I think so.

KELLEY: OK.

KIPLINGER: I think it'll be another two quarters before we see the economy growing again.

KELLEY: OK. Sure appreciate it. Knight Kiplinger, editor of "The Kiplinger Letter." Nice to have you come and chat with us. Thank you.

KIPLINGER: Thank you, Donna.

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