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David Brancaccio: The U.S. economy

David Brancaccio is the senior editor and host of "MarketPlace," a financial news radio program produced by Minnesota Public Radio. The show is distributed by Public Radio International and broadcast on most NPR stations. Brancaccio is the author of "Squandering Aimlessly: My Adventures in the American Marketplace." He joined chat room from Los Angeles.

CNN: Many say the U.S. in a recession. What are the most worrisome indicators of our current economy, and where are the bright spots?

BRANCACCIO: It's funny the definition of recession. If you ask people who have been following the financial pages, maybe people will say "it's two consecutive quarters in which there is no growth, in fact things are contracting." That's the popular definition of recession. The (let's call it "scientific") definition of recession is really quite complicated. It's typically takes nine months or even more than a year to figure out if we were in a recession. So what individuals ask themselves is "Am I in a recession?" A lot of folks are looking around and saying either I've lost my job, or I've got less work, or someone I know has lost a job. That in itself is a perfectly good definition of a recession. So, when you look at the unemployment figures that came out a couple of weeks ago and you see this surge in unemployment, that's sadly a good enough indicator of whether or not we are there. It looks like we're there.

The worst spots, one of them has been with us for a long time, a broad sector, which is manufacturing. Manufacturing has been in a recession for almost two years. That's not news. Doesn't make it any easier to take. High technology, including dot coms and telecom, is in a miserable state. And now travel/leisure because of September 11, is in a bad state.

What's looking up, something I've learned covering news covering the last 25 years is that people who are negatively affected, quite correctly, complain. They give news conferences. They write letters to the editor, they voice their frustration. People who are actually succeeding and profiting during tougher times, often quietly count their money and don't give news conferences. So, you get a distorted picture of the economy -- the pain. It is easy to find people who are currently in pain in this economy. People doing better are often quieter about it. Specifically, who is doing better? An area of strength right now is discount retailing. We see Wal-Mart and Home Depot doing quite well as you would expect during tough times. People are trying to cut their costs and that's helping companies like that. Another area of huge growth right now is home mortgage refinancing because of very low interest rates.

CHAT PARTICIPANT: When will the U.S. economy recover?

BRANCACCIO: That's the question! No one knows the answer to that. If someone says they knew the answer, they would be guessing. The game is to make rash predictions and if you make enough of them, eventually someone will be right and they will be praised as clairvoyant. The issue for us as consumers, not knowing exactly when it's going to recover, is to plan contingencies. To have enough cash saved to get us through six months of rough times if we should suddenly lose our jobs. We have to plan for worse case scenarios and be pleasantly surprised when things go better than expected.

But I don't want to dodge this question completely, so here's my guess: We're being blessed by remarkably low energy prices. Low energy prices are like a giant interest rate cut and that means we could come out of this more quickly. But don't count on that happening before Memorial Day of 2002 and we might not notice that we came out of recession. We might not "feel" that we came out of recession until after the fact. So how's that for specificity: Memorial Day of 2002.

CHAT PARTICIPANT: What do you predict for the airlines and consumer prices related to travel

BRANCACCIO: I heard a prediction from an airline analyst who works for Marketplace, my program, just yesterday. He said if the airline industry gets any worse, we're going to end up with the U.S. government practically running it like some sort of Air Amtrak. Let's hope it doesn't get to that. But a number of airlines flying today will be in bankruptcy protection by year-end, I am guessing. And the watchword will be "consolidation." What this means in the short-term, say in the next six months, will be bargain fairs because the airlines are working to attract customers back and are cutting ticket prices. In the longer run, fewer airlines means less competition and that means we will pay more.

On the principle that we were discussing earlier, that people who are doing better than others in this economy are keeping it quiet, we're noticing that while parts of the travel industry that require people to travel long distances especially by air are hurting, hotels and destinations and other parts of the travel industry that can be reached by car are doing quite well. As people cancel wedding plans for Morocco (for instance) and chose instead to have the reception in Palm Springs California. This from the perspective of someone speaking from LA. They're seeing a boom right now, picking up some of the slack.

CHAT PARTICIPANT: How important a marker of the economy is the stock market?

BRANCACCIO: We like to think of the Dow Jones Industrial Average as some sort of barometer of the current zeitgeist of the state of our country and the world. You turn on the radio and you hear the guy say: "The Dow closed up 74 points," and you know that the world has not come to an end. However, even though we like the Dow to serve that purpose, it is of course absurd to take it too seriously in that way.

Likewise, we tend to look at the state of share prices and try to get a sense of the current state of the economy. That's a mistake. Investors are hopefully trying to assess where the economy will be in the future, say six to nine months from now, and are buying and selling shares based on their sense of the future. So in that sense, the stock market may give us some insight into what investors think things are going towards in the future. But as I mentioned a number of times in my book, "Squandering Aimlessly," there is more to life than the stock market. And I think one of the lessons of the last decade, the 1990s, is the stock market was a habit that can get out of control fast if you're not careful.

CHAT PARTICIPANT: Is the booming housing market an anomaly in these hard economic times? Should we try to buy a house right away or wait and see what the real estate market does?

BRANCACCIO: I own a house and I have access to extraordinary amounts of market and economic data here in the newsroom. Yet, I personally am never quite sure where the housing market is going on my street. What that means is we should try not to make bets about where the housing market is going and instead do a careful assessment of our own financial profile and our own housing needs. Interest rates are really cheap right now, remarkably cheap. Does that mean that people can afford a house? It means more people can afford to buy a house, but of those that can afford to buy a house only a subset of them need to own right now because of their life situation. So the question should be "Can I afford it?" and "Is owning right for me right now?"

So unless you are thinking of selling this house quite quickly in the next six months or a year, then you shouldn't worry about the local state of the real estate market. The outlook for real estate is affected by two opposing forces right now: low interest rates driving people to buy now and, going in the opposite direction, economic uncertainty bred by the apparent recession making it quite difficult to predict in the short term where prices are going.

CNN: Do you have any closing comments to share with us?

BRANCACCIO: I think that during the boom years, people sometimes forgot that there can be in market terms, in economic terms, "rainy days." And while the simple idea of saving went out of style for a while, it's come back. People are building nest eggs to provide financial breathing room should the unexpected happen. This is rational and it's just as good financial planning as going out and spending to help the economy as some public officials are urging us to do. A simple bank certificate of deposit may only pay two and a half percent, but that two and a half percent doesn't look so bad when the stock market is in negative figures. That having been said, it's important to note that both the Dow Jones Industrial Average and the NASDAQ composite are, as we're speaking, both trading well above the levels that preceded September 11. So there may be hope for the market yet.

CNN: Thank you for joining us today

BRANCACCIO: Thanks! This is a new venue for me and I was glad to participate.

David Brancaccio joined the chat room via telephone from Los Angeles, California and provided a typist. The above is an edited transcript of the interview on Tuesday, November 13, 2001 at 12 p.m. EST.


• David Brancaccio Bio

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