So, do we have fundamental strength or underlying weakness? The stock market’s response that day was a 206.5-point drop in the Dow Jones Industrial Average.
The U.S. economy has been struggling to bounce back from recession. There have been signs of recovery, especially in the robust housing market. But the excesses of the 1990s, some of which have led to today’s continuing string of corporate scandals and major bankruptcies, has dampened the rebound, made the stock market skittish, and threatened to bring on economic lethargy.
SOLID FOOTING
President Bush acknowledged difficulties during the Economic Forum, but he was optimistic and tried to reassure attendees and the nation that the economy is on a solid footing.“There’s no question our economy has been challenged by a recession that was beginning when we took office,” he said. Also, the terrorist attacks of Sept. 11 impacted the economy. “And recently we have had to deal with corporate scandals that were long in the making.”
However, he stated, “Our economy has strengths that are greater than the challenges.” He noted that inflation and interest rates are low, consumer spending is still strong, and “We’ve had three quarters of positive growth after three quarters of negative growth.
“No, the foundations of the American economy are strong. Yet, the only purpose of a strong foundation is to build on it. And that’s what we’re discussing today.”
Bush continued, “Too many Americans have lost a large portion of their retirement funds, and they’ve lost a sense of security in the process. I know that. Too many Americans have lost jobs, especially in the high-tech world [and] in the manufacturing sector. Too many Americans run into economic and regulatory barriers when they try to create a business or expand their business. Too many construction projects have halted because they cannot get terrorism insurance.
“The goal must be to create an environment of sustained economic growth. We’ve got work to do. I know that — but we’re going to do the work. It starts with listening to our fellow Americans to find good ideas and implement them.
He added, “I believe to build the long-term security of America, we need to encourage ownership. We want to have an environment where people feel comfortable starting their own business.… Another way we can promote ownership is to encourage home ownership.… And so I’m promoting policies that will encourage home ownership.”
The President emphasized, “We’re confident in the long-term health of this economy.”
FED LESS CONFIDENT
At the same time that the forum was going on, the Federal Reserve announced that it would not cut interest rates at this time, leaving the federal funds rate at 1-3/4%. However, it reduced its assessment of the U.S. economic recovery.In a statement, the Fed said, “The softening in the growth of aggregate demand that emerged this spring has been prolonged in large measure by weakness in financial markets and heightened uncertainty related to problems in corporate reporting and governance.”
The Fed had been suggesting that it might start to raise rates again, after 11 cuts since January 2001, once the economy started to heat up. But the slowing in growth stopped that move. Instead, the suggestion is that yet another cut may become necessary.
Alan Greenspan and associates noted, “For the foreseeable future … the risks are weighted mainly toward conditions that may generate economic weakness.”
It may be that the U.S. economy has just taken a temporary respite and that full recovery is still on the way. As summer turns to fall, we’ll see if the firm foundation that the President spoke of will buoy up this economy.
Mazurkiewicz is news and legislation editor. He can be reached at 248-244-6459; 248-362-0317 (fax); gregmazurkiewicz@achrnews.com (e-mail).
Publication date: 08/26/2002
