Economist sees 2002 recovery

Recession now, rebound next year, Camilli says

Then years of growth

May 31, 2001|By William Patalon III | William Patalon III,SUN STAFF

The U.S. economy is very likely in a recession now, but a rebound that lasts up to eight years will start early next year, according to Tucker Anthony chief economist Kathleen M. Camilli.

Camilli was in town visiting some of the area branches of Tucker Anthony, a Boston-based brokerage house. She was scheduled to give a talk on the U.S. economy at the Maryland Club last night.

"An economist must always be forward-looking," Camilli said during an afternoon interview at Tucker Anthony's East Pratt Street branch, which overlooks the Inner Harbor. "With that in mind, it's appropriate to say that I'm looking for an upturn in the economy."

That upturn should take hold in the first half of next year and could lead to overall economic growth of about 3 percent for 2002, she said. And, barring any unforeseen disasters, that turnaround could presage an economic expansion that lasts until about 2010, Camilli said in her most recent report.

But that return to growth will only come after the country suffers through its first recession since 1990-1991. To qualify for a recession, a country's economy has to contract for at least two consecutive quarters, something Camilli believes will have happened during this year's first six months.

However, at least for now, Camilli's analysis differs from official statistics. While she estimates that the U.S. economy declined 0.5 percent in this year's first quarter, the government said economic output increased 1.3 percent during that period. But the government's growth estimate already has been revised downward once, from 2.0 percent, and many economists believe it will be cut yet again.

Camilli expects the economy to contract 1.5 percent during the current quarter - creating the two consecutive quarters of decline that characterize a recession - before it resumes growth.

If the current downturn turns out to be a recession, it shouldn't be as painful as previous ones, she said. The unemployment rate won't rise much higher than 5.0 percent, and there won't be the so-called "jobless recovery" like the one in the early 1990s that frustrated many out-of-work Americans.

Though jobs might continue to be shipped overseas, the U.S. economy will probably replace most of those lost jobs with new, higher-skill and higher-paying jobs, which is what has made the United States an economic leader, Camilli said. There continues to be a "very strong demand" for engineers, workers with strong technical skills, and people who are willing to keep adding new skills, even if it means retraining or heading back to school, she said.

"That's the life cycle of an economy," she said. "As an economy matures, you want to be creating the high-wage, high-skilled jobs."

Three factors will lift the U.S. economy out of its current doldrums, Camilli said.

The first is a friendly Federal Reserve, which has cut short-term interest rates five times since the start of this year, a rate-cutting cycle that should set the table for resurgent stock prices. The second is the just-passed tax cut, which will make more money available to consumers for spending. And the third is a projected increase in capital spending by businesses - a factor that also planted the seeds of the current downturn, she said.

Tremendously high levels of spending on such capital goods as computers, software and telecommunications equipment fueled the last few years of the 1990s boom, Camilli said. When firms put the brakes on spending, the economy soured quickly.

But as the economy's outlook improves, businesses will resume their spending, giving the recovery some extra force, she said.

Spending associated with the Internet, Camilli added, will continue to be a major force because it allows companies to cut costs and increase efficiency.

"The Internet - technology - is here to stay," Camilli said. "Technology always creates very large gains in secular productivity during an economic expansion. The way I like to think about it is [technology today] is like cars or electricity was in the 1920s boom. Everybody had to buy a car, or get their houses wired for electricity. The Internet is a similar type of phenomenon."

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