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Kandel: No recession
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December 29, 2000: 6:22 a.m. ET
A slowdown is likely but the nation will face a soft economic landing, not a hard one
By CNNfn Financial Editor Myron Kandel
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NEW YORK (CNNfn) - The dreaded "R" word is being heard in the land these days -- and this time it has political as well as economic connotations.
Right off the bat, I want to say I don't think a recession is coming -- a slowdown, yes; a recession, no.
Traditionally, a recession is defined as two consecutive quarters of negative economic growth. Even with the recent downward revision, the nation's gross domestic product grew at 2.2 percent in the third quarter, down sharply from previous quarters. There's a big difference, though, between that figure and an absolute minus twice in a row.
 But there are those on Wall Street, and in the incoming Bush Administration, who are talking recession, with varying degrees of intensity -- and intention. Economists warning about an impending recession are still in the minority, but some are saying the odds are rising. And President-elect George W. Bush and his people have been more vocal on the subject.
Some critics say the Bush people have ulterior motives. They want to make it clear that any economic slowdown -- call it what you will -- started in the Clinton Administration, not their own. They well remember that one of the key reasons for the defeat of the new President's father was that a recession had started on his watch. (Ironically, that rather mild recession was already over by Election Day in 1992 -- but we didn't know it yet.) And perhaps even more important is their view that it will be much easier to get the kind of sweeping tax cut that Governor Bush campaigned on if there's a perception that the economy is teetering on the brink of recession and needs a substantial fiscal stimulus.
Critics, particularly those in the incumbent White House, assert that the economy is doing a lot better than that. They point out that a slowing economy is exactly what the Federal Reserve under chairman Alan Greenspan was trying to achieve with its series of six interest-rate increases that started a year and a half ago. And they warn that recession talk by the incoming Administration and its allies could actually be a self-fulfilling prophecy.
There's no question the economy has slowed sharply from its earlier red-hot pace. On Wednesday, the Conference Board reported that its index of leading economic indicators (LEI) dropped 0.2 percent in November, the eighth decline in ten months. And on Thursday, the business-research group reported that its consumer confidence index fell in December for the third month in a row, down to its lowest level in nearly two years.
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Chances are Greenspan will once again engineer a soft landing, extending the cycle and setting the stage for the next leg of the bull market in stocks. Worry not, the longest expansion in American history still has legs.
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Sherry Cooper
Global economic strategist
Harris Bank |
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But those figures are not totally gloomy. The LEI report, says Ken Goldstein, a Conference Board economist, points to significantly slower growth, but not recession. And there's a story behind the confidence report. That's because consumers appear to be more worried about future economic conditions than they are about the present state of the economy. And those future concerns are much more volatile, meaning they can change more readily. Mark Vitner, economist at First Union, says, "The most recent fall-off could be exaggerated by several temporary factors, such as the uncertainty surrounding the Presidential election, the weakening in the stock market and power shortages in California." He notes that consumers still remain upbeat about employment prospects, and as long as they feel that way, they're likely to buy homes and motor vehicles at a reasonably strong pace.
Sherry Cooper, global economic strategist at Harris Bank, expects the Federal Reserve to come to the aid of a slumping U.S. economy. "There is nothing like two or three interest rate cuts to get the economy rolling again," she says, noting that, "Chances are Greenspan will once again engineer a soft landing, extending the cycle and setting the stage for the next leg of the bull market in stocks." She adds: "Worry not, the longest expansion in American history still has legs."
And as long as I'm saying the glass is half full, let me point to one good piece of economic news released on Thursday. That was a jump of 4.4 percent in sales of previously owned homes in November. That sales pace was the ninth highest ever, and indicates that this year as a whole will likely be the second best ever for existing homes. Lower mortgage rates helped, of course. Bottom line, this is another indication of a soft, rather than a hard landing for the economy.
Quick action by the Fed, a rally in the stock market, a new Administration finally ensconced in Washington and warmer weather will all combine to give the American consumer a renewed feeling of confidence. If that happens, recession talk will vanish. 
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