War and the Economy
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PAUL SOLMAN: Wednesday morning at Bank of America in Manhattan — a trading floor we visited two months ago when the Dow was at 8,000. The explanation then: Not the risk of war, but the uncertainty surrounding it. And today?
MICKEY LEVY: There’s still a huge uncertainty out there that you cannot put probabilities on outcomes and conditional outcomes. You just can’t do it, so that uncertainty is still there.
PAUL SOLMAN: Bank economist Mickey Levy was still somewhat uneasy, as was an economist we brought with us, David Wyss of Standard & Poor’s.
DAVID WYSS: We know what the risk is of having a war: 100 percent (Laughter) but there’s still a lot of uncertainty about the outcome of that war and what happens next.
MICKEY LEVY: And that’s why if you look back over the last couple months, the stock market has been volatile, but very choppy, and it really hasn’t gone anywhere.
PAUL SOLMAN: In other words, though the stock market has swung by some 15 percent since our last visit, both up and down, it started the day just where it had been at the start of February. Within minutes though, the Dow was up more than 2 percent; oil prices dropping. To Mickey Levy, that was evidence for the cautious optimism he’s now feeling.
MICKEY LEVY: Over the last couple days, what jumps out at me is the decline in oil prices, if they stick and if they fall a little lower — unambiguously positive for the consumer; increases their disposal income and on business operations costs, margins, and profits.
PAUL SOLMAN: It could be, then, that the steep run-up in oil prices before the war had been slowing the economy, that the recent drop of more than 20 percent in the price of a barrel is about to help revive it. But as we’ve seen on other occasions, oil spurts and swoons for lots of reasons. Julian Barrowcliffe runs Bank of America’s oil desk.
JULIAN BARROWCLIFFE: This was the euphoric period where everybody thought the whole thing would be over in 48 hours and it would be a cakewalk.
PAUL SOLMAN: Right. Right from here down to there, right?
JULIAN BARROWCLIFFE: This was the “oh, this is more complicated than it looks” reversal, okay? (Laughter) where the market stopped falling and found its feet. This recent blip here is actually short-term problems in Nigeria. There were production outages in Nigeria because of strikes over there. And then the final thing that’s really taken things down in the last two days is this SARS virus. It’s really destroying demand for refined products — things like jet fuel and so on — particularly in the Far East. Nobody’s traveling in the Far East.
PAUL SOLMAN: If oil moves on the very latest information, so do stocks. Ian Winer runs the NASDAQ desk, where prices were up almost 4 percent before noon.
IAN WINER: Nobody is really sure how to handle what’s going on in the Middle East right now. And that’s why you see these big moves one way or another, because people get so crowded one way or another, and all of a sudden something changes, and they’re forced to react to that, and everybody reacts at the same time. And that’s why you get moves like you had today.
PAUL SOLMAN: The NASDAQ jumping, the Dow up more than 200 — what was driving this mini-boom?
DAVID WYSS: All of it is based on a rumor. Everything is trading on the rumors that are coming out of the Middle East, not on what’s happening to the economy or the fundamentals.
PAUL SOLMAN: Not all the news was positive, but Wyss’s longer- term forecast is moderate to healthy growth later this year based on a stealth recovery in capital equipment spending already under way, helped by lower oil prices. Moreover, said Wyss, as we made a quick stop at the Times Square Toys ‘R Us…
DAVID WYSS: Total consumer spending is doing okay. The saving rate is staying down around 4 percent. We’re getting continued increases in consumer spending, slipping around month to month mostly with car sales, but people are still spending money. They are spending it a little bit on different things than they were a couple years ago.
PAUL SOLMAN: Especially on items for the home. On the street though, at Broadway’s half-price ticket line, the signs weren’t encouraging. Are you surprised at how short the line is?
WOMAN ON STREET: Very surprised. I remember when it used to snake around, even early in the morning. Just shocking to me.
PAUL SOLMAN: Wyss had to admit that right here, right now, the economic indicators were still pretty grim.
DAVID WYSS: We’re now at a nine-year low on consumer confidence. People are scared. They’re nervous.
PAUL SOLMAN: And they’re not coming to New York. Ask any street vendor.
STREET VENDOR: Business is slow. And it certainly is off a couple of clicks from last year, definitely.
STREET VENDOR: Business is terrible.
PAUL SOLMAN: Terrible?
STREET VENDOR: Terrible, absolutely, yeah. What kind of reaction are you going to get every time you have a war? Good things happen to us while we’re during a war? Of course not.
STREET VENDORE: I used to do $2,000 a day. Now I’m down to $200 a day. Tell me what happens. 9/11 killed us, and this finished it.
PAUL SOLMAN: In fact, unemployment has risen to 8.5 percent in New York City. And we could find only one worker who didn’t complain about losing his shirt: The naked cowboy. How do you make money?
NAKED COWBOY: People put a dollar in my bib when they take my photo. Saturday was my best day yet: $1,435 in five hours.
NAKED COWBOY SINGING: ‘Cause I’m the naked cowboy coming to a town near you, I’m the naked cowboy coming to a town near you.
PAUL SOLMAN: From the ridiculous to the sublime. A sonata from Heinrich Biber from the 1670s, Andrew Parrot conducting. The relevance? Even non-profits like the New York Collegium, rehearsing at riverside church, are hurting. Wyss, a board member here, says donations are down $200,000 on a budget of about a million.
DAVID WYSS: We’re down about 20 percent probably on donations this year. Last year we got a lot of donations coming in even after September 11 because I think there was a feeling, “let’s show support for New York.” This year that’s died.
PAUL SOLMAN: Due in large part, says Wyss, to stock portfolios that are still down due to uncertainty about the war, of course, but also uncertainty about an economy that — whatever else you can say about it — doesn’t look any too robust just at the moment.