One on One with Josh Feinman, Chief Economist at Deutsche Asset Management.
Thursday, November 06, 2008
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SUSIE GHARIB: Joining us now with more analysis on those retail sales, Josh Feinman, chief economist at Deutsche Asset Management. Hi, Josh.
JOSHUA FEINMAN, CHIEF ECONOMIST, DEUTSCHE ASSET MANAGEMENT: Hi Susie.
GHARIB: Those numbers were pretty dreadful. How long do you see consumers cutting back on their spending?
FEINMAN: It's hard to sugar coat it. I think we're in a retrenchment phase. They were hit by the credit crunch you talked about earlier in the show, declining house prices, declining equity prices, a weaker labor market which we'll get more of tomorrow and a decline in confidence. I think consumers are going to remain in hunker down mode for a while here.
GHARIB: Tell us about the employment report tomorrow. All the estimates sound pretty bad. What are you expecting?
FEINMAN: Certainly in keeping with that, I mean all the indicators point to further deterioration of labor market conditions, so I'm looking for a sizable drop in payrolls, another rise in the unemployment rate. And I fear that we're going to be looking at this for a while, probably carrying over into 2009.
GHARIB: Where do you see the unemployment rate tomorrow?
FEINMAN: Probably moving up a couple tenths tomorrow. But I think the trend over the course of the next couple quarters is going to be materially higher, maybe up toward 7 percent or higher ultimately on the unemployment rate.
GHARIB: We're at 6.1 percent now, so you see it getting up to 7 percent. Josh, between the weak consumer spending and these big job losses, how long and how deep is this recession going to be?
FEINMAN: Well, the economy started to contract at the end of the third quarter. It looks like it's going to contract very sharply in the fourth quarter, probably the biggest quarterly decline we've seen in many years and then probably another decline in the first quarter of next year. So I think this is going to be a bigger and deeper recession than we've seen probably in 25 years, probably more like the ones we saw in the 70's and early 80's, rather than the last 25 years where we have only seen two very mild and very brief recessions.
GHARIB: We've seen oil prices, as a consequence gasoline prices drop at the pump. Is that helping at all to ease the pain or not at all?
FEINMAN: It is. I mean, I think that is helping prevent what would be a sharper retrenchment in consumer spending in the absence of that. So it is good. It's one of the few glimmers of hope that we have out there. But I don't think by itself it's enough to offset all the negatives, at least not in the short run.
GHARIB: You heard earlier we were reporting that Congress is thinking of passing another stimulus package. How soon do you think that's going to happen and will it really help the economy or is it just another band aid?
FEINMAN: Look, anything the government is doing here is really more on the ameliorative side. There's no magic wand that can be waved and make all these problems go away. But having said that, I think fiscal stimulus will be helpful. I think we'll get another package very soon or if not then shortly after the new president and Congress take office. I think it will be in the form of some increased spending, maybe some tax cuts and I think it will do some good and you couple that with the recent signs of a little bit of falling in the credit markets that we've seen, that you alluded to earlier in the show and I think a basis is being formed for some improvement in the economy, but I think it's going to take a while. I don't think we're going to see that materially until well into next year.
GHARIB: President-Elect Obama is holding his first press conference tomorrow. He's going to have his economic team is going to have a briefing tomorrow. Everyone is eager to know what is Obama's plan to fix the economy. Do you think we'll get any clues about it tomorrow?
FEINMAN: I think you'll start to get some clues. They're still taking shape and you'll get some clues about who is going to be the key economic leaders of the administration. People on the short list are people of very high credentials. The problem is that, the problem the economy faces is pretty severe. So it's going to take time to improve. But I think the fiscal stimulus that you're talking about, the monetary stimulus that we're talking about, that we're getting globally, we saw it again today in Europe, I think eventually will start to get some traction. But I wouldn't be looking for it to take hold probably before the second half of next year.
GHARIB: All right, Josh, thank you so much for your thoughts. We really appreciate your coming on the program.
FEINMAN: Thanks a lot, Susie.
GHARIB: My guest tonight, Josh Feinman, chief economist at Deutsche Asset Management.
