Jewish World Review Dec. 30, 2002 / 25 Teves, 5763
No need to be so negative as new year approaches
http://www.jewishworldreview.com | I wrote a column a few weeks ago asking why economists and business leaders are so negative. Things aren't nearly as bad as many of those people would have us think. Since then, however, there have been several significant developments.
The holiday retail season was a disappointment, reportedly the worst in 30 years. The Santa Claus rally on Wall Street hasn't materialized. The major stock indexes, in fact, are on track for their third straight year of decline. That hasn't happened since 1941. And household net worth declined by $5 trillion in the past three years, according to Merrill Lynch.
In addition, new geopolitical problems have emerged. North Korea has moved to reopen a plant that could produce weapons-grade plutonium. The situation with Iraq grows more tense. And the threat of future attacks from al-Qaida continues to loom.
Do I still believe there's too much negativity?
That's not to say 2002 wasn't an extremely difficult year for many people. This atypical recovery has been stubbornly slow and difficult to predict. However, many fundamentals of this economy appear to be steadily improving, as reflected in several recent economic reports.
For example, economic growth in the third quarter - as measured by gross domestic product - was revised higher, from 3.1 percent to 4 percent. Worker productivity over the past 12 months grew at the strongest rate since 1966. Layoffs through the end of November (the most recent data available) are running 25 percent below the levels of a year ago, according to Challenger, Gray & Christmas. Mortgage rates have fallen back to record lows. The average rate on a 30-year fixed mortgage is now 5.93 percent - the lowest rate since 1965. Those lower mortgage rates helped push sales of new homes to a record high in November.
And despite the dismal yearly performance by the major stock indexes, investor optimism rose in December for the second straight month, according to the UBS/Gallup poll of investor attitudes. More than half of those surveyed say now is a good time to invest. And nearly 70 percent or respondents say they are optimistic that 2003 will be better for the financial markets than 2002.
We can also expect that leaders in Washington will take steps to try to make sure that next year is better for working Americans. For example, lawmakers are expected to act soon to extend expiring unemployment benefits. And any new economic stimulus package may contain provisions designed to help working families, such as increasing contribution limits for 401k and IRA plans, expediting increases in the child tax credit, and raising the amount of capital losses that investors are allowed to deduct.
The Bush Administration will be putting in place its new-and-improved economic team, headed by three very capable and respected individuals: John Snow, who will lead the Treasury Department; Stephen Friedman, who will serve as chief economic adviser; and William Donaldson, who will chair the Securities and Exchange Commission. Naming a new SEC head should help speed the process of implementing corporate governance reforms - an important step in rebuilding investor confidence.
Will we see a return to the dizzying growth of the late '90s? It's unlikely. The technology and telecom boom was, unfortunately, an anomaly. However, the economy is showing some signs of improvement, and that's something the prognosticators can be positive about.
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