One on One with Bruce Kasman, Chief Economist at JPMorgan
Tuesday, September 29, 2009
|
|
|
|
SUSIE GHARIB: Joining us now with more analysis about the economy, Bruce Kasman, chief economist at JPMorgan. Hi, Bruce.
BRUCE KASMAN, CHIEF ECONOMIST, JPMORGAN: Hi Susie.
GHARIB: We continue every night to get conflicting data about the economy and people want to know, is the economy now doing better or is it still in trouble?
KASMAN: I think it's pretty clear that the economy has begun to grow. It looks us to like we'll have increased at a 3 to 4 percent pace this quarter. That's a pretty strong pace coming off a deep recession. But I think we have to realize that we're getting growth off a very narrow base. We're getting some help from manufacturers having cut back too far, similar in the builders and we have some incentives that have helped in the auto and housing industry. And we're not yet on a fully sustainable growth pace. In addition we're coming off of such big lows in terms of the recession, in terms of how high unemployment is, how serious credit problems are going to be that we're going to continue to have bad news here on a number of fronts, even as we see the economy growing.
GHARIB: Let me pick up on some of the points that you just made. Let's talk about housing, today's housing data. Are home prices doing better because of fundamental improvements or because of those tax credits from the government for first-time home buyers?
KASMAN: There's probably a little bit of both. And there's probably also an issue here that there were less foreclosed homes sold in the spring, which is showing up in the number. But we do think we're getting close to a bottom in home prices and we do think there is plenty of reason to think it's fundamentals are supporting stabilization in housing here.
GHARIB: How are American businesses doing? You've been reporting about increased merger activity. We see that the Dow is getting closer to that psychologically important 10,000 level. Are these signs of real good news for companies or is it just superficial?
KASMAN: I think the real good news we've been seeing is in corporates. They've done an extremely good job maintaining costs through the downturn. They're seeing improvement in their export picture as foreign demand is picking up. And companies are now making profits even before the recession was over. What's really important now is to see whether that translates not into expansion in the near term, but a pullback from retrenchments. That's what we're looking for in the spending. That's what we're looking for in the labor market data and it's a profile we hope three, six months down the road will start to turn the tide towards job creation.
GHARIB: Bruce, I want to get your take on the FDIC's call today for banks to prepay their premiums. Do you think that could put a squeeze on the banks so that it will be more difficult for them to lend to businesses and to consumers and to keep the credit markets flowing?
KASMAN: I think the FDIC charges a modest impact. But I think we should put it in broader context. There's going to be a price that's going to have to be paid for continued credit losses for the damage that's been done to the economy on the fiscal side. Banks are going to pay part of it, not only in this but also in higher capital requirements and I think we are going to have a credit market that is going to be affected by this for a long time to come.
GHARIB: How are you see -- everybody has been worried over this past year about money flowing through the credit markets. What kind of shape are the credit markets in right now?
KASMAN: Well, the credit markets are still fragile. They're improved and I think the drag on growth is substantially less. There's also good news and the bad in that with the levels of housing and activity consumer durable demand so low, the system didn't need to generate that much credit to get us to grow again. But the healing is slow. It's in the right direction, but I would not expect or characterize credit markets as having come close to normalizing at this stage.
GHARIB: Where do you stand on all this talk of a possibility of a double dip in the recession in the economy? Do you believe in that?
KASMAN: No, I don't think so. I think we're going to gather momentum here, because I think with the initial lift to growth, we're going to get some very powerful and positive feedback loops working. We're seeing some of it already in the improvement taking place in the financial markets. The one which I think is critical to see in the next few months is what we just mentioned, businesses pull away from retrenchment. Not only does that directly add to growth, but it helps labor income. And then gradually and we saw it today, it's not going to be a straight line, confidence picks up and that lifts consumer spending as well as business spending.
GHARIB: Confidence has a lot to do with what's going on in the job market. We get the employment report on Friday. Is anything going to come out of that employment report that will boost confidence?
KASMAN: Well, I think we should be seeing less cutbacks on the part of businesses. If we're right it's not only less job cuts, but it's also a continued stabilization in the work week, which is helpful for income. Unfortunately we do think unemployment is continuing to rise yet. We're looking for a 9.8 percent unemployment rate on Friday.
GHARIB: OK, that's not good. But thank you very much for coming on the program and giving us your views on the economy, really appreciate it. KASMAN: Thank you.
GHARIB: My guest tonight, Bruce Kasman, chief economist at JPMorgan.
