NEW YORK - T. Rowe Price Associates Inc.'s chief economist said yesterday that he expects the economy to climb out of recession next year but warned that the current downturn could last another four months and cost up to 2 million jobs.
"The recession doesn't have to drag on," Alan D. Levenson said at the Baltimore mutual fund company's annual investment and economic outlook seminar in midtown Manhattan. "Fed policy works. Because Fed policy works, we will get a recovery next year."
But Levenson expects the recovery to get off to a slow start and then pick up, with gross domestic product rising to about 4 percent by the end of 2002.
Levenson said the current recession will be more prolonged than the 1991 recession, which lasted eight months. But it won't be as bad as deeper recessions in the mid-1970s and early 1980s.
"It is a shallow recession if you look at history," he said.
The National Bureau of Economic Research declared last week that the country had slipped into recession in March as employment began falling along with industrial production and manufacturing sales. The recession snapped an unprecedented 10-year expansion that witnessed the stock market boom.
Levenson expects the Federal Reserve Board to continue to cut rates as part of its aggressive plan to revive the economy. The Fed has trimmed rates 10 times so far this year, and is expected to do so again at its next meeting Dec. 11.
He also expects Congress to pass an economic stimulus package, possibly one aimed at putting more money in the pockets of lower-income individuals through a "payroll tax holiday."
Levenson said the legislation will generate "something that is likely to be spent, [and] it is something that can be executed quickly."
Levenson was among a handful of Price executives and fund managers who spoke with financial writers in a gathering here yesterday.
Robert W. Smith, manager of the T. Rowe Price Growth Stock Fund, said he expects the stock market to strengthen but that corporate earnings for companies "will be somewhat muted as you work your way into 2002."
"We don't think it will be a strong earnings recovery," Smith said.
Two other Price money managers were more optimistic about the sectors that they follow.
Gregory A. McCrickard, manager of the T. Rowe Price Small-Cap Stock Fund, said small companies typically lead the country out of recession because their business and profits improve more quickly than larger companies.
As the economy recovers, they will be the "primary beneficiaries of that recovery," said McCrickard, who favors property and casualty insurers and security software specialists to regain .
Dr. Kris H. Jenner, manager of the T. Rowe Price Health Science Fund, sees opportunities in biotechnology stocks if investors are patient and can let their investment mature for three to five years.
"Many companies that have exceptional growth rates are about to swing into profitability," Jenner said. "There are going to be some tremendous ... winners, but if you mark them over three to six weeks, there are going to be some big losses."
He said one good bet in Maryland was MedImmune of Gaithersburg.
Mutual fund companies like Price are hoping investors put more of their money to work in their mutual funds.