From mass-mail marketers to clothing store chains, companies at Alex. Brown & Son's Consumer Growth Stock Seminar accentuated the positive yesterday. It was left to economist A. Gary Shilling to make the case that the negative will not be eliminated any time soon.
"We will have a double-dip recession," said Mr. Shilling, twice ranked as Wall Street's top economist by Institutional Investor magazine. He told several hundred money managers, brokers, venture capitalists and corporate leaders that the economy relapsed after perking up briefly during the third quarter and would likely continue to slump through most of next year.
Mr. Shilling, president of A. Gary Shilling & Co. in Springfield, N.J., contended that economists who have predicted a recovery have blundered by looking at the recent slump as "a typical postwar recession."
This slowdown, he said, is a "balance-sheet recession," driven by high levels of debt rather than excess inventories, as in a more typical slump. And where state and local governments have stepped in during past recessions to boost the economy through increased hiring, he said, this time around they are compounding problems with their own layoffs.
The downturn foreshadows some problems that will linger through much of the decade, Mr. Shilling contended.
Many households, he said, have been slipping out of the middle-income brackets but "have been borrowing to maintain lifestyles they can't afford" -- and now are reaching their limits.
Mr. Shilling also predicted that the end of the real estate boom would contribute to a doubling of the savings rate over the next five years. "People are going to have to save explicitly," he said, because the family home will no longer be "a de facto way of refilling the piggy bank."
While Mr. Shilling's short-term projections of economic activity were gloomy, he saw some long-term benefits. Increased savings would stimulate capital spending, narrow the trade gap and help Americans regain control of their financial markets from foreign investors, he said.
For the most part, seminar participants echoed Mr. Shilling's pessimism about the state of the economy.
Nevertheless, the corporate leaders expressed confidence that their own companies could buck any renewed downward trend. And because the presenters included some of the recession-resisting stars of recent quarters -- including Home Depot, the Bombay Co. and Merry-Go-Round Enterprises Inc. -- their predictions were greeted with more respect than skepticism.