One on One with Mark Zandi, Chief Economist of Moodyseconomy.com
Tuesday, April 14, 2009
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SUSIE GHARIB: Our guest tonight sees the U.S. economy improving and says the worst of the recession is over. Joining us now, Mark Zandi, chief economist of moodyseconomy.com. Good to see you, Mark.
MARK ZANDI, CHIEF ECONOMIST, MOODY'S ECONOMY.COM: Good to see you, Susie.
GHARIB: So you think that the economy is improving. Where do you see improvement? Give us your analysis
ZANDI: I think the downturn is continuing and it remains intense. You obviously see that in the job market, but I think the downturn is no longer intensifying. The rate of decline is slowing, the free fall is over. And I think Chairman Bernanke put his finger on it. Consumer spending is a bit better despite today's retail numbers. They look a little better since last Christmas. Vehicle sales were up in March compared to February. Home sales have stabilized. A lot of those are distress sales, but that's part of forming a bottom in the housing market. We're seeing better conditions in credit markets. Base metal prices have risen, consistent with the better or firming conditions overseas. So rays of sunshine, I'm stretching, but rays of sunshine that make me feel like the free fall has come to an end.
GHARIB: We like the rays of sunshine, but let's talk about some of the gloomier areas, the job market. Last night on our program, the economist Nouriel Roubini was on and he said that he expects the unemployment rate to get to 10 percent sometime this summer. First of all, do you agree with that? And if so many people are out of work and have no salaries, how can the economy improve? How can businesses grow?
ZANDI: Right. Well, I think a 10 percent unemployment rate is certainly a possibility. Right now it's 8.5 percent. I suspect that probably won't occur until maybe even this time next year, so we've got a lot of job losses ahead of us. But I think the downdraft in jobs we're seeing right now -- we lost 650,000 jobs in the month of March -- reflects the panic in the financial system, near collapse of the financial system late last year. And these rays of sunshine we're seeing now hopefully will convince businesses to stop cutting at least as aggressively as they have been and we'll start to see - we'll see further job losses this summer and fall, but hopefully much less severe job losses.
GHARIB: I'd like to get your take on the housing market. We've been doing a series in the last couple of weeks looking at the real estate market. Do you see home prices firming up or foreclosure rates slowing down?
ZANDI: Well, our first step, first step is the stabilization of home sales, that's housing demand. That is now occurring. The next step is an end to the decline in housing construction. I think we're pretty close to that. And then house prices will find a bottom, probably end of this year, I think it will occur when foreclosures hit their peak and that probably will be late 2009. One very positive development there, obviously, is the lower mortgage rates. We're now below 5 percent on a fixed rate loan and that's very helpful. Mortgage credit is becoming more available from the FHA and Fannie Mae and Freddie Mac. And the administration has put forward a plan to help modify mortgage loans for distressed homeowners to keep them in their homes and I think that should begin to take full effect by the end of the year and that's when I think the price declines will come to an end.
GHARIB: What do you see as the missing ingredient to get the housing sector back to normal so to speak?
ZANDI: Well, it is jobs. We've got everything in place for stabilization in the housing market. We've got the lower rates I mentioned, the greater mortgage credit, as part of the stimulus package that now is in effect, there's a tax credit for first-time home buyers, which I think is showing some signs of helping support housing demand. But we need to see the job market stabilize and as I said, I think that will begin to occur later this year. As the fiscal stimulus really moves into the economy as the tax cuts get people to go out and spend, as the infrastructure spending begins to take hold, I think the job losses will abate and then we'll have all the ingredients together for a more stable housing market.
GHARIB: Mark, what's your take on the financial health of the banking sector? We've been getting some positive earnings numbers from Goldman Sachs and Wells Fargo. Are they for real or are they a head fake as some people suggest?
ZANDI: I think they're for real. I think the worst is over. Obviously it's far from normal and a lot more has to be done. The president has put forward a plan to take some of the bad assets off the banks' balance sheet off the balance sheet, provide them with more capital and they'll need that. But we are seeing that some banks are making money. Goldman Sachs made a lot of money. Also we're seeing that banks can go to market and issue equity and capital for a private capital and that's what Goldman did today and I think that's very positive. So there are some indications, clear indications in my view, that the banking system while still very stressed is in much better shape and moving in the right direction.
GHARIB: Let me jump in. We just have a few seconds. There's been some discussion that maybe the Obama administration's got to have another stimulus package. What do you think?
ZANDI: Very much a possibility. I think it's premature to go down that path at this moment. We still haven't seen what the impacts, the benefits of the first stimulus package are. Hopefully we'll see that this summer and fall. But if we get into the latter parts of this year and the economy isn't engaging as much as was hoped for, then I think another stimulus package for the first half of 2010 would be called for.
GHARIB: All right, lots of good information. Thank you so much, Mark.
ZANDI: Thank you, Susie.
GHARIB: My guest tonight, Mark Zandi, chief economist of moodyseconomy.com.
