The Post asked economists if they agreed with the Federal Reserve's statement Wednesday, following a better-than-expected employment report and brisk auto sales, that the economy is "leveling out."
DOUGLAS HOLTZ-EAKIN
Former director of the Congressional Budget Office; senior economic adviser to Sen. John McCain's presidential campaign
If America were populated only by economic statisticians (a frightening image) then the worst would be over. Reams of economic data support the notion that, in the words of the Federal Reserve, "the economy is leveling out." Unfortunately, the labor market remains very weak, unemployment is more likely to rise again than to fall, and real labor income is essentially flat. That combination offers little relief to U.S. households, which entered this recession highly indebted. Americans are facing an ongoing foreclosure crisis and have suffered losses on their investment portfolios. It is not surprising that consumer confidence remains weak.
At the same time, the federal budget is in disastrous shape, and the Fed's massive liquidity injections pose a risk of a significant uptick in inflation in the years to come. Americans face the real possibility that "recovery" will consist of paring spending to rebuild wealth, paying higher taxes and facing higher inflation. A new generation may be exposed to the frustrating coincidence of chronically high unemployment and rising prices. So the numbers will be better, but the American psyche will take longer to recover.
ALICE RIVLIN
Senior fellow at the Brookings Institution; founding director of the Congressional Budget Office; director of the Office of Management and Budget, 1994-96
If you have lost your job, the worst may not be over for a long time. If you have a job, you may still lose it. The main reason for optimism is that the rapid deterioration of the economy has slowed down. Production and sales may even start increasing gradually in the next few months. For many businesses, the worst may be over. But don't expect a bounce. Scared consumers are hanging on to their cash, bemoaning the lost value of their houses and trying to reduce their debts. They won't rush back to the mall to buy things they don't absolutely need. Employers will be cautious about hiring until they are sure the recovery is robust, so unemployment will remain high for several years.
Public intervention has stabilized the big financial institutions, some of which are making substantial profits. To many this seems unfair, since it was the mistakes of those institutions that caused the crash. Unfair or not, a catastrophic financial meltdown was avoided. We'll have a long slog back to prosperity, but another Great Depression is not going to engulf us all.
RUDOLPH G. PENNER
Fellow at the Urban Institute
At the least, the rate of economic decline has slowed. Some measures of economic activity -- such as housing and car sales -- may even be headed upward. But it is unlikely that there will be dancing in the streets. Although economists declare that a recession is over as soon as we pass the bottom, the general public tends to be more subdued. People are likely to remain unhappy until we reach past peaks in economic activity and employment. That will take a very long time: The unemployment rate will probably remain well above 9 percent all the way to the 2010 midterm elections.
That will make congressional Democrats very nervous. Some might call for a second stimulus plan. But I doubt one will pass. The majority's desire to appear proactive will be trumped by worries about an exploding federal debt. Moreover, whatever economists may believe, the public will probably decide that the first stimulus was not very effective.
MARK ZANDI
Chief economist at Moody's Economy.com
The Great Recession is finally giving way to an economic recovery. Driving this turn is the Federal Reserve's unprecedented actions, which have stabilized the financial system, and fiscal stimulus. It's no coincidence that the recession is ending just when the stimulus is providing its maximum economic benefit. Lower payroll taxes, checks to Social Security recipients and help to unemployed workers are buoying household spending. State and local governments have avoided more draconian budget cuts with checks from the feds. The "Cash for Clunkers" program has juiced up vehicle sales, and the housing tax credit has boosted home sales.
But while the economy is making its way back from the abyss, it will not come roaring back. The foreclosure crisis shows no letup, which means that house prices will fall further. Rising vacancy rates and weakening rents mean that hundreds of billions of dollars in commercial mortgage defaults are in the pipeline. And credit remains impaired as banks are anxious and securitization markets are frozen by the prospects of more loan losses and regulatory reform. While it is still premature to say for sure, odds are high that the economy may need another boost from policymakers next year to ensure that the expansion takes full root.
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