The economy is picking up
ECRI---BANERJI, ANIRVAN---Chief Economist
>> lackluster retail sales in those months and cooling in manufacturing sales. manufacturing improved. they didn't report inflation. prices were described as generally flat or up modestly even though companies are paying more for raw material, particularly oil. alan greenspan says the economy is picking up after hitting a soft patch earlier this year. the next guest says it's not a soft patch-it's a persistent slowdown. according to the data, there will be no improvement this year. we welcome anirvan banerji head of research at the economic cycle of research institute and co-author of "beating the business cycle." welcome. thank you for being here.
>> thank you.
>> why do you say this is not a soft patch here?
>> because if you look at the leading indexes, they anticipated the soft patch. it was not as much a surprise to students of the business cycle as it was to many other people. and the classic picture that you can see by the index growth rate which you have up here, and you can see that from the spring onwards, there was a very clear pronounced, persistent decline in the growth rate and it is still very much intact and no leading in the index. just telling you that a return to robust growth is nowhere in sight.
>> let's take it back a step. explain the leading index on the chart.
>> this is a combination nation of the leading indicators of the economy and this is designed to anticipate turning points in economic growth. and that's exactly what it's done. i think what the chairman has done today is to recognize reality in a backward looking way and recognize in it a forward-looking way which is to say that he's not acknowledging yet that this slow down is by no means over.
>> do you think that interpretation was the chairman's intention?
>> well, let me put it this way. if you do say that return to robust growth is nowhere in sight, it makes ate little more inconvenient to raise rates.
>> that will say it. let's take a look at the chart. taking you back to the beginning of 1999. you have something very clear here and explain what we're looking at.
>> if you look at the left half of the chart which shows the decline into recession t recessionary decline is very intense and it clearly predicted the recession. >> that's what we're looking at here is 2001.
>> exactly.
>> and the shock of september 11.
>> then we have seen the recovery and the slow down in 2002, 2003, and the pick up back again and the most recent slow down. this preceded the oil price spike, so it is not the oil price spike alone that is explaining it. a
>> somebody might look at the start and say perhaps the initial recovery was exaggerated.
>> well, if it was, it was. we did have a 20-year high in g.d.p. growth in reality.
>> sure.
>> but if i my mix my metaphors here, i think what's going on here is if you actually move the walrus and stick your head in the stand, it's hard to see the forest through the trees.
>> that said, will the fed raise rates here?
>> do you think they should?
>> the chart we saw is nowhere near being recessionary. and rates are still-not near neutral yet, so you could say that.
>> when do you see the economy turning around. do you take a look at the charts and your sense of what's happening here.
>> not this year. what we have seen essentially is a return to slightly stronger growth from very weak growth in june. but it is much slower than what we had earlier in the year. and return to that kind of robust growth is nowhere in sight. certainly not this year.
>> you mentioned that slowdown predates the oil price surge.
>> exactly.
>> we have the oil price surge as it's backing off. what do you think it's going to do to the economy? that what's going to keep it from turning around by the end of the year?
>> no, i think oil prices do have an impact ton economy, no doubt about it. but to the extent that mr. greenspan thinks that if oil prices backed off, he would be very optimisting about the economy and we would respectfully disagree. in other words, even if oil prices continue to ease off, you'd still see a continuing period of slow growth, at least for the rest of the year.
>> with the trend we see on this chart, though, if we have some sort of sudden shock that's unexpected, could this push it into very easily a recessionary tract?
>> the answer is no. and thank you for asking that question because even if we did have a major shock, oil-related or otherwise, this is still a resilient economy. this is not the kind of movement you saw before the 2001 recession. so at least that's a bright point.
>> and there is a certain amount of, for lack of a better term, plicing in expectation of something and that-of pricing in expectation of something if it happens will not be as much as a shock as at the bottom of the chart.
>> i think that was a very vulnerable spot. we are not that vulnerable now and that's the good news.
>> anirvan banerji, thank you very much. co-author of "beating the business cycle." frank quattrone earned $120 million in 2000 as a top wall street banker. today he is facing an 18-month prison term. that story is coming up next.
