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Special Event

What's Happening to the Economy?

Aired March 1, 2001 - 10:00 p.m. ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

BILL HEMMER, CNN ANCHOR: I'm Bill Hemmer live in Atlanta. For several months now, the health of the American economy has been held in question. What is happening and what do you need to know? We're about to find out. Our special report begins now.

ANNOUNCER: Welcome to CNN TONIGHT. A special report: what is happening to the economy?

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: For the period ahead, downside risks predominate.

(END VIDEO CLIP)

ANNOUNCER: We've heard the carefully worded pronouncements; tonight, we're asking the hard questions, and getting the answers in plain English.

(BEGIN VIDEO CLIP)

UNIDENTIFIED FEMALE: This is the first new economy recession.

(END VIDEO CLIP)

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: We think that the unemployment rate is going to continue to drift higher over the course of the year.

(END VIDEO CLIP)

ANNOUNCER: The changing attitudes about losing, and keeping your job.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: The majority of individuals, they realize the loyalties of yesteryear are gone.

(END VIDEO CLIP)

ANNOUNCER: The changing strategies to save your shrinking portfolio. (BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: It was supposed to be one of the stocks that's going to be around for years -- hasn't happened.

(END VIDEO CLIP)

ANNOUNCER: From our CNN correspondents, analysts, as well as real people, an hour of straight talk about the economy, your job, your wallet, and your dreams.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: I have been in a recession. This is not a recession. We're still all working. They're still plenty of people working.

(END VIDEO CLIP)

ANNOUNCER: CNN TONIGHT. A special report: "what is happening to the economy." Here is Bill Hemmer at the CNN center in Atlanta.

HEMMER: Good evening. If your portfolio is a bit too painful to read, if that 401(k) plan makes your stomach turn just a bit, if misery loves company, you have come to the right place tonight. Take a number and get in line: Everyone is feeling the effects of this economic downturn.

And so tonight, we take a closer look at what is happening to your money, and more importantly, why it's happening? Our panel is distinguished and ready to go. From Chicago, chief economist at Bank One, Diane Swonk is with us tonight.

From New York, "Time" Magazine's Wall Street reporter, Dan Kadlec.

From Atlanta, the professor, Jeff Rosensweig out of Emory University. We will put them on hold for a moment.

But first: what happened to that raging bull market? Where did it go? From Washington, Peter Viles and the state of today's economy.

(BEGIN VIDEOTAPE)

PETER VILES, CNN CORRESPONDENT (voice-over): In half a century as an economist, Alan Greenspan has tracked eight different recessions. He's not using that word yet, preferring the word "retrenchment." Whatever this is, he says it's not over.

ALAN GREENSPAN, FEDERAL RESERVE CHAIRMAN: Excesses built up in 1999 and early 2000 have engendered a retrenchment that has yet to run its full course.

VILES: On Wall Street, though, more and more economists are using the other "r" word. KATHLEEN CAMILLI, TUCKER ANTHONY: This is the first new economy recession. Also, keep in mind that we have tremendous demand in our economy for skilled workers, and we don't even have enough people coming out of the educational system to meet that demand, so I think, that what might be an interesting characteristic and uniqueness of this recession will be a very small increase in the unemployment rate.

VILES: That's the trump card of this economy: even with all the layoff announcements at companies like Montgomery Ward's and DaimlerChrysler, unemployment is low, just 4.2 percent.

UNIDENTIFIED MALE: I have been in a recession. This is not a recession. We're still all working. There are still plenty of people working.

VILES: But also plenty of evidence the record-setting expansion of the '90s is losing its momentum. The government now reports fourth-quarter economic growth slowed to an annual rate of just 1.1 percent, down from 8.3 percent just a year earlier. And Greenspan says the economy is running at zero growth now. Consumer confidence has been in a free fall, as Americans have been inundated with those layoff headlines, and have turned cautious.

UNIDENTIFIED FEMALE: Right now, I think that it is a time to save, not a time to do a lot of buying.

UNIDENTIFIED MALE: We're cutting back, so every day, everyone's job is in jeopardy. You know, nothing is secure anymore right now, so we are all worried. Greenspan can do what he wants, but it is not helping, not yet.

VILES: And then there's the stock market. With the Nasdaq in a bear market, losing half its value in a year, investors have lost a staggering $3.7 trillion since the market peaked, at least on paper.

President Bush wants to give the economy a boost by giving back roughly half of that amount in tax cuts.

(on camera): But to give you an idea how quickly the stock market has collapsed, the Bush tax cut is $1.6 trillion spread but it's spread over 10 years. Stock market investors have lost more than double that amount of money in just a little bit more than 11 months.

Peter Viles, CNN Financial News, Washington.

(END VIDEOTAPE)

HEMMER: Stocks are just one barometer to examine the current climate. But with so many Americans invested in public companies, it has become a critical barometer. Case in point: the Nasdaq.

Last year, it was soaring toward 5100. But what a difference a year can make. Today it closed below 2200: a drop of well over 50 percent. The Dow is not as severe, but still tough. From January of last year until today, the Dow Jones Industrial Average off nearly 11 percent from its high. Now, we just heard Peter Viles mention the word "recession," but what is that exactly? And are we in one? From New York, on this topic now, here's Bill Dorman.

(BEGIN VIDEOTAPE)

BILL DORMAN, CNN CORRESPONDENT (voice-over): From tumbling stock prices to tens of thousands of job cuts, the U.S. economy has slowed down so much and so quickly that corporate leaders are worried.

UNIDENTIFIED FEMALE: We are cautious on the economy.

JOHN CHAMBERS, CHAIRMAN & CEO, CISCO SYSTEMS: You have a challenge developing in the manufacturing industry where they are literally in recession.

DORMAN: Economists generally call it a recession when the economy shrinks for two quarters in a row. That's six months of economic decline. Trouble is, it's hard to tell if you're in a recession until some time has passed. Federal Reserve Chairman Alan Greenspan says we're not in recession, but Morgan Stanley Dean Witter's chief economist, Stephen Roach, disagrees.

STEPHEN ROACH, MORGAN STANLEY DEAN WITTER: We know we're in a recession when the unemployment rate does start rising, when the level of consumer demand, business demand starts falling, when manufacturing production is moving down. All those features of a recessionary environment are very much in evidence today.

DORMAN: Over the last 30 years, the U.S. economy has suffered four recessions. The longest stretched from November 1973 until March 1975. A six-month dip took place from January to July 1980. A more extensive downturn lasted from July 1981 to November 1982. The last recession lingered from July 1990 to March 1991.

(on camera): Danger signs for the economy can range from high- energy costs to what economists call inventory build-up. That's when factories have produced more goods than consumers want to buy, and that's part of the reason consumer confidence remains a key to the health of this economy.

DAVID INGRAM, SENIOR ECONOMIST, ECONOMY.COM: That is what's going to determine whether or not we continue to sort of walk a fine line between a period of slow growth, during which we unwind these inventory buildups, or a period of recession.

DORMAN: The difference between economic growth and recession will ultimately come down to consumer spending, which still makes up nearly two-thirds of the U.S. economy.

Bill Dorman, CNN Financial News, New York.

(END VIDEOTAPE)

HEMMER: Some questions are obvious. Some answers are not. Let's try and get a few. Diane Swonk in Chicago. Dan Kadlec is in New York. And Jeff Rosensweig is here in Atlanta. Good evening to all of you.

In the interest of ladies first, let's begin with Diane. There's one thing I think we have to keep in mind throughout this hour: A -- times may be a bit tough out there, but it can be worse; and B -- if you look at history, certainly everything comes back eventually. Given that, Diane, what's your reading on things out there in America today?

DIANE SWONK, BANK ONE CHIEF ECONOMIST: First, we focus too much on Wall Street and not enough on Main Street. We had an economy running 110 mph out there, we've have slowed down to 40 or 50; we are still moving forward, but it feels as if we have stopped.

We are nowhere near a recession in my mind or in my view of the world. I believe we are currently setting the stage for a fairly substantial re-acceleration in growth later on this year. I think people often forget, a year ago these same CEOs that were saying the world was such a great place and this would never end; now are saying the world is never going to get better.

I think it's really easy for people to say, most recent history will extrapolate into the future, but in economics we always have to remember the most recent paths often lays the ground for the next stage but not the trajectory for where we are going.

HEMMER: Let's go to New York. Dan, pick up on that thought. I think the reason why a lot of people look this and look at it with such stark eyeballs right now, is because we were at 5100 and what's happened since last March?

DAN KADLEC, "TIME" MAGAZINE COLUMNIST: Right. I think the real key here is the rapid deceleration in the economy -- it feels like a recession even if it isn't one, and that is reflected in the stock market and the consumer confidence numbers. The key to turning this around is getting some sort of a base in the stock market which will probably require lower interest rates.

And I think that, you know, we are in some trouble here with the readings we have been seeing: housing is weak, the Nasdaq is hitting new lows, consumer confidence is awful. This is not...

HEMMER: You're not painting a very pretty picture thus far.

Professor Rosensweig, here in Atlanta, do we contribute somewhat to this just by talking about it in the manner that we do; we kind of piling it on a bit or not?

JEFF ROSENSWEIG, EMORY UNIVERSITY: Yes, I was worried about that. I mean, Nasdaq isn't at lows. The Nasdaq's over 2, 000. You know, when I was first live on CNN it was two hours before the Gulf War started 10 years ago, and the Nasdaq was like 300. It's over 2,000. We had a brilliant run for a decade. We went wild in 1999 and the beginning of 2000.

I think it's related to extra money the Fed threw into the economy, worried about Y2K. After Y2K was shown to be a nonevent, they sucked that money out and the market came down.

HEMMER: If that's the case and you're in education, what would you teach us about the lesson we need to know right now?

ROSENSWEIG: The lesson we need to know right now is the only place people need to be in the long run is in the stock market, but well diversified. They can't be chasing some kind of trend and they should be putting their money in steadily.

But I think Diane was absolutely right. This economy is not in recession. When we had our friend at Morgan Stanley, Roach, speaking earlier on this show, he was saying look at manufacturing. Manufacturing is less than 20 percent of the economy.

Teachers are teaching. Health care keeps growing. Even construction grew a lot in January. People were buying cars. I have sympathy for people who are losing their jobs, people are losing their jobs. But we are not in recession. We don't need all this gloom and doom. By the fall this economy is off to the races again.

HEMMER: Diane, what do you say to people who say: "You know, 12 months ago I felt relatively rich. Today I don't feel that way anymore." Some people might offer that they feel poor again. What would you say?

SWONK: Well, that's a very small percentage of people. I mean, let's put this into context. Even though many households have some money in the stock market, only 0.3 percent of households account for 60 percent of realized capital gains out there in the U.S. That's a really small percentage of people that we're talking about, that actually live on this money.

I think a larger portion of people really care about whether they have a job and what paycheck is and the money in their pocket is growing or not. And right now we've got real wages still growing.

Wages in December grew at their fastest rate since 1989. It's just tough to stop a consumer with money in their pocket to burn, and today we saw the first glimpse of vehicle sales, something that takes a lot of confidence to buy. It looked like it was crossing 17 million units again. A stunning month, in the month of February after a stunning January.

And even the housing market which has, retrenched a bit off of record highs on the new home sales in December, retrenched back again in January a bit, still, holding up much better than anyone thought it would at this stage of the game.

HEMMER: All right, we'll keep our fingers crossed there, put it on hold. Dan, we'll come back to you shortly here.

But also tonight, something else we'll examine: How the average consumer's reacting to the downturn in the economy.

CNN's Jeff Flock live in Chicago with us now.

Jeff, what are they saying about that downturn?

JEFF FLOCK, CNN CORRESPONDENT: Indeed, Bill, strolling the aisles of the Target this evening in Chicago. And you know, it's after 9 o'clock, but still busy out at the cash registers here.

We will be back in just a little bit to give you the very latest up-to-the-moment sense of what people are thinking. How confident they are in their own jobs, and how confident they are in their continued ability to spend.

We'll be back in just a moment, Bill.

HEMMER: Good deal. Jeff Flock in Chicago. Thanks, Jeff.

Seen enough to make your own conclusions yet? Either way, keep watching. When our special report continues, we will focus on your job.

(BEGIN VIDEO CLIP)

UNIDENTIFIED FEMALE: We've got auto repair, we've got -- truck drivers, carpenters.

(END VIDEO CLIP)

HEMMER: Still ahead, what jobs are out there now, and where unemployment may be headed.

Also, fighting to keep some gleam in the golden years, despite what's happening to some portfolios. But first, have a look at today's closing numbers from Wall Street.

(COMMERCIAL BREAK)

HEMMER: Employment agencies across the country now seeing a slight bump in business, as corporations react to the economic climate.

CNN's Mark Potter now with a look at the jobless picture from Miami.

(BEGIN VIDEOTAPE)

UNIDENTIFIED MALE: It's 30 hours a week.

MARK POTTER, CNN CORRESPONDENT (voice-over): At a job placement center near Miami, more and more workers who lost their jobs are struggling to find another.

Elizabeth Bienaime (ph), a former customer service representative, has been looking for three weeks, and so far can't find anything that pays well enough.

UNIDENTIFIED MALE: Now, the days and hours are Monday to Friday, 8:30 to 5:30, for 40 hours per week. POTTER: The headlines tell the story. Companies across the United States are announcing hundreds and thousands of layoffs. The industries hardest-hit are manufacturing, telecommunications and retail.

PROFESSOR PAT FISHE, UNIVERSITY OF MIAMI: Whenever corporations, it doesn't matter what time period you're looking at, whenever corporations aren't meeting their earnings goals, or meeting what their investors want them to do, they're going to make changes. And the most quick and simple change they make is the employment levels that they have.

POTTER: A recent report says that in December and January alone, layoff announcements affected more than one-quarter million people. That is almost triple the number during the same time last year.

David Greenlaw is a chief economist for Morgan Stanley Dean Witter in New York. He believes the jobless picture will get worse before it peaks around the end of the year.

DAVID GREENLAW, MORGAN STANLEY DEAN WITTER: We think that the unemployment rate is going to continue to drift higher over the course of the year, and will probably be near 5 percent by the end of the year. That's in comparison to the current rate of 4.2 percent .

UNIDENTIFIED FEMALE: We've got auto repair, we've got -- truck drivers, carpenters.

POTTER: As job counselors help clients try to find work, economists point out today's unemployment figures seem especially dramatic because they follow years of economic good times. Today's jobless rate is only about half that of a decade ago.

Robert Garcia, senior vice president of Lee Hecht Harrison, a career management firm, says while laid-off workers usually find new jobs, employee attitudes have changed.

ROBERT GARCIA, LEE HECHT HARRISON: The majority of the individuals recognize that this is something of the new millennium, that they realize that the loyalties of yesteryear are gone, that companies are really looking to become competitive. And as a result of that they may lose their jobs.

POTTER: And when one person loses a job, it can have an emotional effect on others.

(on camera): Of particular concern are recent indicators of declining consumer confidence. Economists say dramatic headlines about widespread layoffs have a frightening effect, which in turn, can impact the broad economy.

Mark Potter, CNN, Miami.

(END VIDEOTAPE)

HEMMER: With that as a backdrop, back to our panel now. Dan Kadlec, we left you a bit short last time. Jump in on this job picture here. What are we to read right now about the current growth or lack of growth given the employment picture?

KADLEC: Well, everything that we've seen suggests that unemployment will remain low. For one thing it's not a typical slowdown. I mean, it's the deceleration that we're having. We don't really have negative growth, so there do seem to be plenty of jobs out there for those who get unemployed.

And so on top of that, you've got a situation where companies have really spent a lot of time and money hiring over the last few years, training, especially in the technology area. And they're going to be reluctant, unless they really see things going bad, they're going to be reluctant to let these people go, to only have to do it all over again at the next upturn.

HEMMER: Yeah, I think the thing that strikes me about this story -- we work in the business of headlines, and when we see headlines on a daily basis, whether it's General Electric, or DaimlerChrysler, or Worldcom -- today 6,000 layoffs announced today -- I guess, professor Rosensweig, to you: how do we separate the reality from the impression that's created out there?

ROSENSWEIG: Well, of course, we don't want to trump up this impression anymore either. We always talk about the negative things. Do we think about all the companies that being started today, women in Iowa, men in Tennessee, women in Massachusetts, you know, it's small companies, and that's what make our economy great -- is this dynamism we have.

Those big companies are never job creators, and haven't been for decades. One fact I was just thinking about while we were seeing these packages: you know, tomorrow morning, more American will go to work than ever went to work on a Friday in history?

Now, some people have been laid off, and I feel for them, and I hope Greenspan cut interest rates again -- and I think he will within three weeks. I hope we get a tax cut, not the full George Bush tax cut, but a tax cut.

But more Americans are going to work. We're building about 1.6 million houses this year, and in a recession, it falls down to about one million houses, and as Diane said, people are out buying cars. We got to be a little more positive. Once in a while, it would be nice to come in and talk about some woman with kids who got a loan and started a business, and now 25 people are working for her. That's what makes America the world's greatest economy.

HEMMER: All right, back to that point in a moment, but, Diane, how do we address the relativity in the job picture today?

SWONK: Well, I think there is a couple of issues. I mean, I grew up in Detroit, Michigan during the worst of those recessions, trying to look for jobs during -- between college semesters with 25 percent unemployment rates, so I'm a little jaded when it comes to Wall Street crying right now, because I have seen a lot worse than this.

And here I am in the middle of where the economic slowdown is supposed to be the worst -- I was just in Detroit, Michigan -- you know, we are not calling for a recession from Main street here in the Midwest, where we are supposed to be hit the worst.

And look -- let's look at these some of these layoffs -- DaimlerChrysler represents one of the biggest ones out there, and I think one of the best examples. First of all, the layoffs that they are talking about are spread over three years; second of all, if all the people who are eligible to retire, which is 28,000 workers at DaimlerChrysler, that means they'll more than meet their needs for reduction in work force. That's just a much more kinder, gentler form of downsizing than I saw when I was growing up.

HEMMER: Yeah, Diane, Dan and Jeff, stand by there. Our panel will be with us throughout the evening here on the special look at the U.S. economy.

In the meantime, I want to go back to Chicago, and take the pulse of consumers there. How are they dealing with the current economic climate?

Once again, Jeff Flock with us live tonight. Hey, Jeff, good evening again.

FLOCK: That's right there, Bill, we're just trying to get some immediate sense of people. We got somebody who has got a whole basket full of plants here, but that's not the question. The question is how do you feel about your job right now? How secure do you feel in this economy?

TINA (ph): I feel pretty secure right now. I work for academic sales, so -- been there for about a year-and-a-half, and there's no threat of downsizing or anything like that.

FLOCK: And how old are you?

TINA: Twenty-three.

FLOCK: You have not been through a recession, really, in your work life, right?

TINA: No. No. No. Not at all.

FLOCK: Does it worry you?

TINA: No. It doesn't worry me at all. No.

FLOCK: Even though you work in the e-field, you are an electronic book publisher, correct?

TINA: Computer book publishing. It's Racks Press (ph). Even though we have seen like a downsizing, as far as sales overall with IT spending, it's not -- it's nothing that I'd...

FLOCK: No fear here. Tina, thank you. I appreciate it.

Want to move along. And let's see -- who else. How are you feeling about this economy right now as it relates to your own job?

UNIDENTIFIED MALE: I still fell pretty good. I haven't seen any effects on myself or the economy slowing down. I hear about the analysts talking about it, but I don't really see it myself, so I haven't had any fears as of yet.

FLOCK: So, we are trying to scare you, but you are not scared?

UNIDENTIFIED MALE: Exactly. Exactly. As of right now. We'll see if I see any effects or prices, or other people that I know losing their jobs, but as of right now, my family and all that are pretty safe.

FLOCK: Thank you. Appreciate it.

One more quick gentleman before we get away.

You know what it's like to be through a recession?

UNIDENTIFIED MALE: Yes.

FLOCK: Do you feel like we're in one now?

UNIDENTIFIED MALE: No.

FLOCK: Are you worried about your own job?

UNIDENTIFIED MALE: No.

FLOCK: Why?

UNIDENTIFIED MALE: I work for a nonprofit association.

FLOCK: So, it doesn't matter anyway?

UNIDENTIFIED MALE: No.

FLOCK: What the economy is doing?

UNIDENTIFIED MALE: Well, it matters, but I mean -- I'm not at the same risk as someone who is in a volatile situation, where, you know, in order for stock holders to continue to make money, they have get rid of so many jobs so that CEOs can continue to benefit from the...

FLOCK: You're pretty happy you are not in that situation right now, are you?

UNIDENTIFIED MALE: Yeah, I am.

FLOCK: As you can see, Bill, not a lot of fear out here. At the Target store in Chicago at least, not a lot of fear about jobs at this time. Will you check back?

HEMMER: All right, Jeff Flock, we will check back with you in a matter of moments again there in Chicago. At the mean time, though, coming up here: rethinking retirement options.

(BEGIN VIDEO CLIP)

ROBERT MCKENNEY, AT&T RETIREE: We are starting to cut back. We were going to purchase a new car, we are holding off on that a little while.

(END VIDEO CLIP)

HEMMER: Coping with the incredible shrinking portfolio. That's where our CNN TONIGHT special report continues.

(COMMERCIAL BREAK)

HEMMER: Welcome back. In the current economy, in the current stock market, no investor seems to be safe, including many seniors who are finding there is no such thing as a sure thing.

Fred Katayama now looks at how two couples are coping.

(BEGIN VIDEOTAPE)

MARGARET WEIDLING, RETIREE: And we're going to have gutters put up along the top.

FRED KATAYAMA, CNN CORRESPONDENT (voice-over): Margaret Weidling and her husband Ralph took out a $40,000 loan to jack up their sloping house on the hillside, but their financial fortunes are sliding like their home.

The 8,000 shares of Pacific Gas and Electric Ralph had bought as a PG&E employee have tumbled, and the utility postponed its dividend in January. Their dividend income shrank by $300 a month, money the Weidlings were counting on to pay back the loan.

WEIDLING: Instead of taking two years, it will probably take me three years to pay it off.

KATAYAMA (on camera): Many seniors are facing stock shock. They've invested in so-called widows-and-orphans stocks, like AT&T and PG&E for the price stability and their ability to steadily pay out dividends.

But a sharp economic slowdown has forced some of those companies to suspend or slash cash payouts, and their stocks have plummeted to boot. Widows-and-orphans stocks are not the safe havens many people thought they were.

(voice-over): One of the most wildly held stocks, AT&T, has fallen 64 percent from its all-time high. It chopped its dividend 83 percent this month, the first cut in its 125-year history. Its spin- off, Lucent Technologies, nose-dived 85 percent, but it maintains its dividend. PG&E, off 62 percent, has postponed its payout. Xerox, down 91 percent, slashed its dividend.

A big dividend cut put Bob McKenney in a bind. Making up half of his portfolio: Lucent Technologies and his former employer, AT&T.

R. MCKENNEY: It was supposed to be one of the stocks that was going to be around for years, and you would put it in a safe deposit box and forget about it. That hasn't happened.

KATAYAMA: His shrinking portfolio of $650,000 has cut his net worth in half. This year, the 65-year-old retiree will get $3,200 less in dividends.

R. MCKENNEY: We're starting to cut back. We were going to purchase a new car, we are holding off on that a little while. And we're going to cut back a trip out west -- we're gong to postpone that for a little while.

JANET MCKENNEY, RETIREE: I do use a lot of coupons. I try to watch what I buy.

KATAYAMA: Back in California, the Weidlings (ph) have 100 percent of their portfolio in utilities. Financial planners say elderly investors should diversify, spreading their money across many stocks, and across other assets, such as bonds.

The Weidlings and the McKenneys say they cannot afford to spend as much on their grandchildren as a result of the dividend cutbacks. But both couples are holding on to their stocks for now, hoping that a bounce back will give them a shot at reclaiming financial freedom.

Fred Katayama, CNN Financial News, New York.

(END VIDEOTAPE)

HEMMER: Almost there. The great bull market of the '90s attracted plenty of new investors to Wall Street, perhaps, you, as well. When our special returns, see how the new money helped change the game in New York.

Also, President Bush's cure for what ails the economy. I'll talk taxes and more with the new commerce secretary when we continue.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: I knew the first quarter was going to be a little hairy due to the election and the situations over in the Mideast and everything, but I think it'll settle out and start leveling out in the second quarter.

UNIDENTIFIED MALE: I hope people just go about their normal spending habits and aren't frightened by things that they read in the newspaper, and go along with things that they've been doing the last couple of years. I think the economy will be fine. (COMMERCIAL BREAK)

HEMMER: Welcome back. With us tonight: From Chicago, Diane Swonk is here. Dan Kadlec is in New York. And Jeff Rosensweig is here in Atlanta. Back to our experts in a moment.

But first now, want to talk more about the markets. And who are the new market players? Rhonda Schaffler knows. She works the New York Stock Exchange every single day.

(BEGIN VIDEOTAPE)

RHONDA SCHAFFLER, CNN CORRESPONDENT (on camera): I'm on the floor of the New York Stock Exchange.

Ten years ago, 170 million shares would change hands during a daily trading. These days, traders go through that amount of shares in just the first 45 minutes of each day. But more than traffic flow has changed here over the past decade. This place, along with the thousands of electronic trading floors that make up the Nasdaq, were the birthplaces of the longest-running bull market in history: not only the longest, but the broadest.

More and more, ordinary Americans were cashing out their savings accounts to invest in individual retirement accounts: 401(k)s and mutual funds. In fact, one in two U.S. households currently owns stock through mutual funds, up from one in four 10 years ago. And the number of equity mutual funds has quadrupled in the past decade to 4,400, with more than $4 trillion under management.

As the markets became more democratized, they also became more decentralized. Investment clubs sprouted across the country. Discount brokers offered low-cost trading accounts. Day-traders sought outsized profits. The rise of the personal computer and the Internet forever changed the way we accessed, exchanged, and used financial information: no wonder then that many of the technology companies listed on the Nasdaq played matador to the spectacular bull run.

The Nasdaq's value exploded 14-fold to $4 trillion in the last decade. The combined value of the 3,200 companies that trade here quadrupled to $12 trillion in the same period. But nearly a year since the start of the current market slump, all this new money is learning an important lesson: that humility is as much a part of the financial markets as is glory.

Rhonda Schaffler, CNN Financial News, New York.

(END VIDEOTAPE)

HEMMER: And from Capitol Hill today: A House committee today approved an across-the-board reduction in tax rates, this intended to save taxpayers almost $1 trillion over 10 years. The reduction is a key item in President Bush's tax cut plan. He was promoting that today in Atlanta, wrapping up a two-day budget tour. Earlier, I spoke with the secretary of commerce, Don Evans, about that tax proposal. The White House says its plan is right on target. But would the administration come off its $1.6 trillion dollar tag?

(BEGIN VIDEOTAPE)

DON EVANS, COMMERCE SECRETARY: One-point-six trillion is the right number. I mean, it's something that the president has looked at carefully with his team. We have looked at the needs of this country. We have thought about what the right size tax cut is. And $1.6 trillion is the right number.

HEMMER: Then given the...

EVANS: Not less, not more, but $1.6 trillion.

HEMMER: I apologize for the interruption.

EVANS: Sure. No.

HEMMER: But the given the current economic situation, are tax cuts enough, or do you need more help from the Federal Reserve as well, to continue to lower interest rates? And with those two working in tandem, is that enough given the current climate?

EVANS: Well, that's a call for the chairman to make, of course. That's not my call to make. I mean, he has of course brought interest rates down some over the last several months. And it's a call for him to make, as he looks at economy and what it's doing, as to whether he is going to lower them any further in the coming months. But, you know, fiscal policy is an important part of how this economy grows.

And that's what the president is responsible for. And he has made the decision -- and I think the right decision -- that lowering the tax burden on the American people will help this economy at this time.

HEMMER: What happens, though, down the road if the surplus is not there? How are you willing to adjust or modify your plan?

EVANS: Well, I just don't accept that the surplus won't be there. I mean, I know how the budget has been put together. I mean, we have used a growth rate in the GDP of 2.9 percent. I mean, over the last eight years, GDP has grown at 3.5 percent. So I think it's a very conservative set of assumptions that have been used in developing this 10-year budget.

But as I mentioned, Bill, one of the parts of the surplus -- and when you look at the budget of $28 trillion over the next 10 years, one thing we have done is set aside a $1 trillion contingency that says: We don't -- we don't know exactly what to expect in the next 10 years, so we are going to set aside $1 trillion to take care of those contingencies.

(END VIDEOTAPE)

HEMMER: Secretary of Commerce Don Evans, with us earlier.

Now, I want to go back to our panel.

Dan, up to you in New York: What about this tax plan? How much could it help the economy?

KADLEC: Well, I mean, I think it helps. It's at least an insurance policy if we get into a protracted recession. And beyond that, if people know its coming, you know, there will be a tendency to discount that and maybe spend a little bit ahead of time, especially if the tax cut is retroactive to the beginning of the year, which is what we've been talking about.

HEMMER: Yes. Diane, how fast can he get money to consumers under his tax plan?

SWONK: Well, I would like to step back a minute and because we talked about what people are thinking here.

HEMMER: Yes. Please.

SWONK: The confidence issues: first of all, we people's actions speak stronger than their words. The expectations component of confidence has tumbled as people head for a really negative headline, that's been the major factor that has been driving down confidence.

Their own current financial conditions are still well within expansion territory, and sure enough, they are out there spending it at Target, not worrying about it, and I think that's very important. When you talk about people expecting a tax cut -- that's going to affect what they spend -- I just don't buy into that. I buy into, people spend the money in their pocket. They have money in their pocket to burn, their burn it.

I think that's what's going on right now. We are still seeing people with money in their pocket and they are still burning it. When it turns into how long about -- will it take a tax cut to actually have an affect on the economy.

Well, frankly, I think the largest effect -- and most will agree on this -- factor will be, the bulk of it will happen a year from now once people do their 2001 tax returns, even with the retroactive tax cut. My own personal views are clouded, because I'd benefit so much from this tax cut, that I have to sort of separate my personal views from my economic views.

But my economic view is, that we will be having a tax cut hit this economy at the same time this economy is already into a re- acceleration in growth and the affects of monetary policy are at their peak. We will see very easily the Fed doing a 180-degree turn around in policy -- much like they did over the last 12 months -- over the next 12 months as well.

HEMMER: Point well taken. To Professor Rosensweig in Atlanta. What is your take on the tax cut? What do you think? ROSENSWEIG: You know, these are rich men that don't want to pay estate taxes. Ten years, going to need an estate tax. That's going to affect it. We need a retroactive cut -- as our friend in New York just said; we need it for working people; we need it on their payroll tax...

HEMMER: Retroactive to the first of the year, I'm assuming?

ROSENSWEIG: Retroactive to the first of the year and rebated as fast as possible. You know, the person making $30,000 a year -- or the wife and the husband each make 30 -- they are paying more in Social Security and Medicare tax than in income tax. We are trying to get this big income tax cut for the rich, and by the way, I don't mind some income tax cuts, and I think the rich, maybe, are paying a little bit too much.

But let's get realistic. The rich can go buy a car but the person making $25,000 -- it's the school teacher -- we have to get money in their pocket fast, and we also have to rely on Alan Greenspan. You heard it here first on CNN: he's cutting interest rates within the next couple of weeks; he will keep cutting if that's what it takes.

Bill, let me make one more point: that is the silliest package I have ever before. A family playing golf: we only have $650,000 in this account here. What was it five years ago? Probably 100, went to a million, and came down...

HEMMER: And he missed the putt.

ROSENSWEIG: And he missed the putt, because he is too concerned about himself. Today in my class I had Peter Bell, the CEO of CARE, in front of 200 MBAs -- future business leaders -- you know, there are 2 billion of people on this planet living on less than $2 a day. I think if he didn't care about himself so much he wouldn't miss the putt. He should calm down a little bit. He's got 650, he could even pay the estate tax.

HEMMER: Coming up shortly, we will get predictions from all three of you. So stand by on that.

Plus: is the bear market taking a bite out of consumer confidence? Diane mentioned it, so did others. Surveys say yes right now, but get to the pulse of the people now. Back to Chicago and Jeff Flock when we return here.

(COMMERCIAL BREAK)

HEMMER: Once again, welcome back. I want to check in now once again in Chicago with Jeff Flock. We mentioned the phrase consumer confidence. Taking that pulse now -- Jeff, hello, again.

FLOCK: They're more confident, Bill, than I guess I figured that people would be out on the streets.

Geraldine is a bank teller. I checked your cart tonight. There's not a lot of big-ticket items in there, but that's by design.

GERALDINE, BANK TELLER: Yes.

FLOCK: You're not worried about this economy at this point?

GERALDINE: No, I'm not. No, I'm very comfortable.

FLOCK: Tell me why.

GERALDINE: Everything seems to be going pretty much OK. Everyone seems to be content and comfortable with the economy right now.

FLOCK: In your world.

GERALDINE: In my world. I haven't heard any major complaints.

FLOCK: Good deal.

GERALDINE: Yes.

FLOCK: Geraldine, thank you. I appreciate your comments tonight. Some confidence there.

This gentleman is a doctor. You told me you used to think doctors were insulated from any kind of an economic downturn. You don't feel that way now?

UNIDENTIFIED MALE: Not anymore, actually. Especially with Medicare reform in the last, you know, eight to 10 years. There have been a lot more doctors who are worried about, you know, reimbursement. And it's not like the '70s anymore, where doctors would get reimbursed and there would be no...

FLOCK: How do you feel about this economy?

UNIDENTIFIED MALE: I think we're probably from a cyclical turn to a downward turn. I'm not really sure if we're in a recession or not. That's something to be played out, but I think people learn a lot from the past, from recessions in the past. And I think with the dot-com scare, there might be some worry there but I don't think that -- I think we -- I'm pretty confident that we might be in a downturn, but nothing too drastic.

FLOCK: We'll hope you're right about that. Thank you.

Last, I want to get to this gentleman who's got 401-K...

UNIDENTIFIED MALE: Yes, unfortunately.

Jeff; Like me. And -- not too happy about what that's doing right now.

UNIDENTIFIED MALE: No, unfortunately, the last few days in particular, things have been pretty bad, but we'll. Hopefully there'll be a turn for the better. FLOCK: Now, they say you're not supposed to look at that until you're ready to retire. And you're not ready to retire?

UNIDENTIFIED MALE: No, I've got a few more years to go, so -- and I'm invested for the long term, so I'm not really too worried on the short term.

FLOCK: But it is kind of hard not to check in with that...

UNIDENTIFIED MALE: It a little depressing when you check it on the Internet and you see a lot of red on the screen instead of that nice blue or black. So it is a challenge.

FLOCK: Good deal. Sir, I appreciate it. Thanks very much to all your comments this evening.

As you can see, some guarded optimism out here in the hinterlands. We'll continue to watch it, Bill.

HEMMER: Good deal. Jeff, thanks. Again, live in Chicago.

The economy also the topic of tonight's cnn.com "Quick Vote."

The question: Are you spending less because of the slowing economy? Right now as we tally up the votes, reflecting what Jeff Locke is hearing in Chicago. The answer: 54 percent, no, say they are spending less because of the slowing economy. Once again, go online at cnn.com to add your two cents there. And AOL users, as always, the keyword is CNN, and, once again, that is not a scientific poll there on line. When we come back here, predictions from our experts and a history lesson on recessions and why they are not necessarily a bad thing.

(COMMERCIAL BREAK)

HEMMER: Now that we've spent the past hour examining our economy, time now to look back even further. If we are on the verge of a recession, it certainly wouldn't be the first time. CNN's Garrick Utley now, with a recession history lesson.

(BEGIN VIDEOTAPE)

GARRICK UTLEY, CNN CORRESPONDENT (voice-over): For all its industrial and technological might, its prosperity and adaptability, the United States has had nine recessions since World War II. They came in all sizes and shapes. In fact there is a sort of alphabet soup of recessions.

There is the recession shaped like a "V": the economy goes down and bounces right back up. We should be so fortunate.

Then there is the double whammy of the "W": one recession is followed immediately by a second.

And then, there is the "U" shape, where the economy goes down and stays down for awhile. That began at the end of 1973, as rocketing oil prices stopped the economy in its tracks. It took more than a year for growth to resume.

PROF. RICHARD SYLLA, NEW YORK UNIVERSITY: It was pretty bad. The decline in 1974 and then there was really a year of almost no growth, negative growth, and the recovery didn't really come until late '75 and '76.

UTLEY: Next came the double-dip recession, which began in 1979, and helped do in President Jimmy Carter. An anemic recovery peaked just around Election Day 1980. Ronald Reagan's sunny optimism couldn't brighten what happened next.

Inflation was running at 14 percent a year. Interest rates were raised to choke it off. Mortgages reached 17 percent. Unemployment hit 10 percent, the highest level since the Great Depression of the 1930s. After about a year of misery, in 1982, the economy came back strong.

SYLLA: That is when the great bull market in Wall Street that we have had for nearly 20 years now, it began in the summer of 1982. The Dow Jones Average then was at 780, and now it is over 10,000.

UTLEY: Enter the first President Bush, and another recession. It was short -- eight months -- and relatively mild. But it brought something new. In recessions, it is traditionally the blue collar workers who suffer the heaviest job losses.

But in 1990-91, the number of white collar workers laid off soared, as companies extended down sizing from the shop floor into the office. But the recovery, when it came, led to dramatic growth in new jobs.

So, will there be another recession? Of course. Is it happening right now? Maybe, maybe not.

But if it must be, at least we know what shape we want. Let's hope for a "V" -- as in very short.

Garrick Utley, CNN, New York.

(END VIDEOTAPE)

HEMMER: And as we close out tonight, back to our guests for some predictions now.

Dan, Diane and Jeff. Dan, first to you. Recession, yes or no?

KADLEC: No.

HEMMER: You hedged.

KADLEC: Yes -- no, I -- I think we're in a slowdown. We may go negative for a quarter.

HEMMER: Tax cuts -- how big?

KADLEC: I think big. I think that President Bush ran on a tax cut. He was elected on that. There's an appetite for this no matter what the billionaires club says, that doesn't want one. I think we're going to get one.

HEMMER: Got it. Nasdaq a year from now -- where are we? We're at 2,200, a little less than that, today.

KADLEC: I think modestly higher.

HEMMER: Got it.

Diane, recession, yes or no?

SWONK: No, absolutely not.

HEMMER: You're emphatic on that.

SWONK: Not even close to it.

HEMMER: Tax cuts, where are we?

SWONK: We're going to get more than we want, more than we need -- but we're going to get a lot...

HEMMER: Give me a number.

SWONK: Over a trillion.

HEMMER: Over a trillion. Somewhere between one and 1.6, that I'm thinking.

SWONK: Yes.

HEMMER: Nasdaq a year from now, Diane. Where are we?

SWONK: Well, Nasdaq, I think, we're going to see some uptick in the Nasdaq as old-line industries really start to finally embrace the true power of the Internet. I think the silver linings of the crash of the Nasdaq is we're finally putting this money where it should be -- toward productivity use in old-line industries. And that's going to help the Nasdaq out by the end of year, but I think the S&P is also going to catch up a bit. You guys are betting on recession.

HEMMER: OK. Jeff, recession, yes or no?

ROSENSWEIG: No recession.

HEMMER: All right. Nasdaq a year from now is where?

ROSENSWEIG: I don't play that game, Bill. Three to five years from now, much higher. Five years from now probably doubled.

HEMMER: Five years from now, where is it?

ROSENSWEIG: Get out of the short-term mentality.

HEMMER: Got it. ROSENSWEIG: Five years, double. Keep your money in the market.

SWONK: Good point.

ROSENSWEIG: Move it in slowly.

HEMMER: Does the guy make the putt next time?

ROSENSWEIG: You know, even more important, Bill, in the year 2050, one quarter of us in this great nation will be Hispanic. Get your kids learning Spanish. Learn Spanish yourself.

HEMMER: Got it.

Tax cuts, how big?

ROSENSWEIG: Tax cut, 1.2 trillion. We can get 3 or 4 million of an estate tax exemption. We just don't need it up to a billion dollars. Let's help the person, the family with a home, a farm -- give them three or four million of exclusion. Get the top marginal rate down, maybe to 36 percent. We don't need Bush's 33, but we need something. So 1.2 trillion -- but let's get some money in the hands of teachers and firemen and firewomen. Let's get money out there quickly, give a reduction on their payroll tax, now, or a refund.

HEMMER: Got it. OK, we have to run.

Diane Swonk, Dan Kadlec, Jeff Rosensweig, many thanks to all of you tonight. Much appreciated. We'll come back and do it again, all right? We've got to run. Tomorrow's another day. Alan Greenspan is on Capitol Hill. The opening bell hits at 9:30 Eastern, and the beat goes on. My thanks to our correspondents here and, again, to our guests. I'm Bill Hemmer live at the CNN Center in Atlanta.

"SPORTS TONIGHT" is coming up next. Stay tuned.

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