When Will Economy Turn Around? Local Experts Weigh-in.

5-Mar-09
Published in: KSDK - NBC
Author: Mike Garrity
Description:

So many varying economic opinions are being shared on television these days that it can become confusing. NewsChannel 5's Mike Garrity, tried to get some clarity by asking three local economic experts the same series of questions about the economy.

The three local economists he talked with each teach at different St. Louis area universities.

David Porras, Ph.D. is an Associate Professor of Business at Webster University, Steven Fazzari, Ph.D. is a Professor of Economics at Washington University, and Jack K. Strauss, Ph.D. is the Chair of Economics at St. Louis University.

1. The first question we asked is why is the stock market dropping at such a high rate? Particularly in the last few weeks?

Ultimately all three, in part, said it has to do with fearful investors pulling out of the market because they are unclear about the U.S. Government's plan moving forward. This as some banks have been given bailout dollars and the jury is out on the return that the economic stimulus plan will bring.

"Stocks do poorly when the investors do not know what the heck is going on and initially they've been a little disappointed by the clarity of Barack Obama's plans. They had great hopes for the President and I think he has put forth some great ideas but unfortunately wall street and some of the investors want clarity instantly," says Dr. Strauss.

"There's a big question about how much profitability American companies can generate stock profits are actually an evaluation of what these companies can generate. And there's a concern if they don't sell their output that ultimately they're not going to be able to generate a profit over the coming year and the markets just trying to figure that out," says Dr. Fazzari.

"A lot of times when people get worried or people are worried about what's going to happen with their money or their jobs or their income they get out of the stock market even though that may not be based on the best information," says Dr. Porras.

2. How bad is the current economic situation?

Interesting to note, the professors all have varying perspectives on exactly how high unemployment could get and exactly how the Federal Reserve might be able to help the economic situation.

"By now we're starting to get to the point where the current downturn looks as bad, or what we saw as bad, as the early 1980's. And, that was widely considered the worst economic recession in the U.S. since the great depression," says Dr. Fazzari.

"It's pretty bad. Six point two percent decline in GDP is a bad drop. So, this is the worst economy we've been in for decades. What makes it worse is we have a bad economy and we also have an environment where the Federal Reserve can't do much to help it out because the Federal Reserve lowers interest rates and interest rates are lower," says Dr. Porras.

"Well this is a severe recession, so currently the recession parallels the 1982 recession. Unemployment in that case was at 10.8 percent, so its not as bad in terms of unemployment because we're probably only going to hit eight or nine percent," says Dr. Strauss.

3. When will things turn around?

One professor says he's waiting to see what things look like in July, but by late 2009, we could see a turnaroud start. Another professor says this recession will last at least two years. The other professor says he thinks the recession could be about two years exactly - so in his opinion we still have more than a year to go.

"Our best case scenario is by the second half of this year. The stimulus will probably start taking effect. I think if the stimulus plan doesn't work, and we see bad numbers through the second half of the year, I think we're in for trouble," says Dr. Porras.

"Car sales will pick up because people will have to trade in their clunker. Sales have fallen a lot and their just beginning to turn around because people can't tighten their belts forever. People will go out shopping soon," says Dr. Strauss.

"Once we get into 2010, and beyond, there's just a lot of uncertainty. I think we're in unprecedented times, and maybe it's a little discomforting to hear this, but even the experts don't know how long its going to take to get a recovery," says Dr. Fazzarri.

View entire interview