"The Economy and the Markets at Mid-Year"-Jim Awad & Josh Feinman Talk Recovery
Friday, July 03, 2009SUSIE GHARIB: So as we begin the second half of the year, the big question on everyone's mind is: will we emerge from recession anytime soon? As I wrapped up my discussion with Jim Awad and Josh Feinman, I asked Josh about those so-called green shoots that everyone's been talking about and whether he sees them as a sign that the recovery is for real.
FEINMAN: I think it is. I think the economy is stabilizing now after the free-fall it was in and I think we are going to return to growth later this year and into 2010. But I think that growth is going to be pretty sluggish in the early going.
GHARIB: Jim, do you agree with that?
AWAD: Yes, I do. If you look at the building blocks of the economy, none of them point to high growth. The consumers had a near death experience and is going to be very prudent. Business has excess capacity. Exports except for India and China are going to be sluggish and the government stimulus will eventually wear off and the government's got to raise taxes and lower spending so pay down the deficits so that'll be restricted, so I think it's going to be very a very tepid recovery.
GHARIB: And a lot of this depends on people having jobs. So Josh, what is your outlook for the job market and when will we see the unemployment rate coming down?
FEINMAN: I think it's going to be a while. I think the best we can hope for short run is a slower rate of deterioration in the job market. I think that'll happen over the course of the year but really going back to significant hiring net positive employment and declining unemployment, I think the earliest we can look for that is 2010.
GHARIB: You know so many of the CEO's and economists I talk to now say that because of the financial crisis, business is not going to go back to normal. There's a new normal that they're talking about. Is that how you see it, Jim?
AWAD: Well, I see the new normals for the time being, if you look at the building blocks of where growth comes from, none is going to get you back to above trend line or even trend line growth. But this is America and we have been through tough times before and some new paradigm will occur. Technology and the Internet came along. Something will come along to re-ignite growth in America. But as you sit here today, you don't see it.
GHARIB: Is there a new normal for the economy?
FEINMAN: I think it's going to be an adjustment process, but I think when the shakeout is over, maybe let's say a couple of years, I don't see fortunately anything that would really suggest to me that potential growth in the economy has been taking a big hit. Productivity growth has held up very, very well which is encouraging and at some point, you're going to have pent-up demand.
AWAD: Yes, but Josh, I think that pent-up demand could be very restrained, when people have lost this much money in their homes, when the job market is this bad.
FEINMAN: It's a question of timing. I think it will take a couple of years maybe but the longer you go without buying a new home, buying a new home-related item, buying a car and so on, eventually the pent up demand will be there. Maybe it's going to be three or four years down the road, but they'll be there and that will be the thing that galvanizes us back to above trend line.
AWAD: But the question becomes, how much of the behavior change is permanent? In other words will people be in smaller homes? Will they keep a car an extra year or two? How much of this is cyclical and how much is secular? We don't know yet.
FEINMAN: They might, but whatever the new level is that they get comfortable with, higher household savings rates, smaller homes, once they get to that, we have made that adjustment, from that point forward I think growth can return to what it was.
GHARIB: This is a conversation to be continued. Thank you both so much for coming on the program and happy Fourth of July.
FEINMAN: Thank you.
AWAD: A pleasure.
