Forget a V-shaped recovery. Settle for a 'U'

Posted: Thursday, June 21, 2001

NEW YORK (AP) -- In the midst of a muddled economic scene, one thing is becoming clearer by the day: Time has about run out on chances for a V-shaped recovery, in which the economy rises as abruptly as it fell.

The plunge in industrial activity, the shocking financial warnings from high-tech companies, the growing resistance of consumers, and continued sluggishness of exports are among factors in the fading hopes.

Early in the downturn, a V-shaped recovery was almost taken for granted by some economists, and especially by stock market analysts who couldn't accept the idea that the massive, inexorable force called the ''new economy'' could be stopped in its tracks.

In fact, neither could the heads of new-economy companies, who until late last fall saw little in the immediate future to be concerned with -- the same CEOs who belatedly are now conceding their companies are burdened with massive inventories and shattering financial losses.

And vastly disillusioning is the realization that some of the greatest inventions of the new economic age, including fiber-optics and all the wireless gadgetry, are more visionary than immediate and practical.

The wealth effect has been deflated with a great hissing sound. Close to $5 trillion of stock market wealth has disappeared, and when you add in the loss of confidence, the economic effect is a multiple of that.

Consumer spending has slowed, understandably, but debt hasn't, and official figures show that home mortgage delinquencies have risen to some of the highest rates in years. Meanwhile, the savings rate remains near zero.

It has taken a while for shocked Americans to absorb the reality that after years of fantastic economic progress, we are still in the same old world rather than merely at a rest stop on the way to the great tomorrow.

The ingredients of a V-shaped recovery just aren't there, and so the likelihood now is for the economy to remain depressed for many more months, its recovery line tracing a soft U-shape rather than a sharp V-shape.

Readers of DRI-WEFA's U.S. Forecast Summary, an influential and widely circulated look into the immediate economic future, are likely to be surprised and disappointed by its latest summary that ''the U.S. economy appears headed for five more quarters of sub-par growth.''

That's a long time to wait for an economy that just a few months ago was seen by many who should have known better, such as corporate chiefs and maybe some Fed governors, as too strong for its own good.

The extent of the current weakness, and the difficulty of quickly putting the economy back on its feet, is suggested by the inability of lower taxes and interest rates -- usually a bullish pair -- to provide a jolt.

Finally recognizing that economic good times are not to be accepted lightly, Americans may now be giving thanks that the downturn is short of a recession, and that the Fed can cut rates still more.

End Adv PMs Tuesday, June 19.



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