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Markets Rise, but Confidence in Economy Still Lags

March 13, 2009 at 6:00 PM EST
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Wall Street marked its best run since November this week as President Obama worked to boost confidence in recovery moves. The Wall Street Journal's David Wessel offers insight.
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JUDY WOODRUFF: The stock market managed new advances today. It finished its best week since November gains, as President Obama made a fresh bid to shore up confidence. Ray Suarez has our lead story report.

RAY SUAREZ: When the opening bell sounded at the New York Stock Exchange this morning, traders hoped for a lucky Friday the 13th. Stocks immediately headed higher, but then seesawed for the rest of the day.

Ultimately, share prices ended with a fourth straight day of gains: The Dow Jones Industrial Average rose almost 54 points to close just below 7,224. The Nasdaq added 5 points to close at 1,431. For the week, the Dow was up 9 percent, and the Nasdaq and the S&P 500 rose more than 10 percent.

Today’s rally was helped by the chairman of Citigroup saying the bank would not need additional federal aid.

But there was also a new warning, this time from China. Premier Wen Jiabao strongly implied huge new spending by Washington could devalue the dollar and hurt Chinese investments.

WEN JIABAO, Premier, China (through translator): Of course, we are concerned about the safety of our assets. To be honest, I’m a little bit worried. I’d like to take this opportunity here to implore the United States, through you, to honor its words, stay a credible nation, and ensure the safety of Chinese assets.

RAY SUAREZ: That statement came through loud and clear at the White House, because China holds $1 trillion in U.S. government bonds. White House press secretary Robert Gibbs.

ROBERT GIBBS, White House Press Secretary: There’s no safer investment in the world than in United States.

RAY SUAREZ: The president’s top economic adviser, Larry Summers, also focused on bolstering confidence today. Summers said Americans are still too fearful about the future.

LARRY SUMMERS, White House Economic Adviser: If, in the last few years, we’ve seen too much greed and too little fear, too much spending and not enough saving, too much borrowing and not enough worrying, today our problem is very different. It is this transition from an excess of greed to an excess of fear that President Roosevelt had in mind when he famously observed that the only thing we had to fear was fear itself.

RAY SUAREZ: In the Oval Office, Mr. Obama himself returned to the economy, offering words of encouragement.

BARACK OBAMA, President of the United States: There are a lot of individual families who are experiencing incredible pain and hardship right now. If you’ve been laid off at your job, if you’ve lost your home, then, you know, right now is very tough, but we’re providing help along the way. We’re going to get through this, and I’m very confident about that.

RAY SUAREZ: The president spoke a day after saying things are not as bad as they seem and that he tries to take economic numbers and market swings in stride.

For more on this day’s developments, we’re joined by David Wessel, economics editor for the Wall Street Journal.

And, David, what, if anything, can you conclude from four up days after months of terrible down days?

DAVID WESSEL, Wall Street Journal: Well, I think the first thing you conclude is don’t conclude too much. The stock market is fickle, and we have had false dawns in this recession a number of times, and this could be another.

But there are some scattered signs throughout the economy that just may be we’re nearing a bottom. Consumer spending, as Larry Summers mentioned in that speech at the Brookings Institution, seems to have stabilized. It stopped falling even before the stimulus checks have arrived.

Some of the early warning signals in the economy, like the price of metals or the price of shipping rates on the ocean, have stopped falling and started to turn up.

So there — and also, the stock market itself, even if it’s a lousy predictor, it may make people feel more confident, businessmen and consumers more confident. And as we know, one of the things that has been sorely lacking is confidence.

So it’s encouraging that things are not worse today than they were a week ago, but it’s premature to conclude that the recession is over and it’s going to be smooth sailing from here on in.

RAY SUAREZ: Do you agree with the president’s assessment delivered today that things are not as bad as people think?

DAVID WESSEL: Well, I think the president is walking a very fine line and trying to strike an appropriate balance. He did, as the clip you showed, continues to express the obvious, that don’t deny the reality.

There are a lot of people suffering. Unemployment is over 8 percent, and it’s going to go higher, maybe to 10 percent. The economy is still contracting. There are still people who are going to lose their houses. The credit markets are not functioning normally. Things are still plenty bad throughout the economy.

And then he says, “But I am working on this.” And he’s trying to assure the American people that, A, he understands the problem; B, he has a plan; and, C, he has long-term confidence in the resiliency of the economy and its people to come back.

And so he’s trying to give this very subtle message, and it seems to me that he’s right. I believe that things are bad now; I believe that things will get better. I hope that the government programs will work, but I don’t know when that will actually show up.

RAY SUAREZ: Wen Jiabao’s statement was interesting and cautiously optimistic, while saying that China was ready to step up to the plate if needed with increased stimulus, he also worried about the status of the U.S. dollar.

DAVID WESSEL: That’s right. I think it’s very interesting to watch the Chinese in a moment like this. On one hand, they understand how much they are dependent on global demand, and they have done a big fiscal stimulus, just as the United States has.

And he was subtly putting pressure, I think, on the Europeans heading into these G-20 meetings to say like it’s time for you guys to open your fiscal spigot a little bit and do your bit for demand. So that’s one thing.

But the second thing, one thing that makes this episode very different than the ones we’ve had in the past is, we go into this problem very dependent on the continued willingness of the Chinese people and the Chinese government to lend the United States hundreds of billions of dollars.

And when they — when you have a big creditor like that, you have to be prepared to show him that you’re a good bet. And if the Chinese ever decided that they’d rather put their money somewhere else, in France or Vietnam or Saudi Arabia, we would have trouble. And he’s kind of using that as a warning to say we have to be fiscally responsible.

And I think that’s why you see the president, and Larry Summers, and Treasury Secretary Tim Geithner constantly mentioning that they’re going to get to fiscal discipline one day, because they know that the big creditor on the other side of the Pacific is nervous about that.

RAY SUAREZ: Some big American corporations reported what might in other years be bad news, but, given the context, was seen as good news. G.E.’s credit was down-rated, but not as much as people thought, and people took that as a good sign about G.E.’s health.

DAVID WESSEL: I think that what happens at a time like this is that you have a pessimistic outlook on the economy and it turns out you weren’t pessimistic enough, so you’re constantly growing more pessimistic and so forth. And when you know the economy is turning is when things turn out to be not as bad as people feared. And we may — and underscore “may” — be at a point like that.

But I think it’s important to emphasize: The economy is still contracting. The economic forecasters think it will continue to shrink in the second quarter. Unemployment’s going to go up. It’s just that the worst-case scenario, the fear that we might be sliding into another Great Depression, doesn’t look quite so much as a risk today as it did a few weeks ago.

RAY SUAREZ: Is there a metric, a surefire measurement or observation that can let people know when you’ve found the bottom?

DAVID WESSEL: No. You only know when it’s passed. You see all these tentative signs, and then you look back and say, “A-ha, that’s when it was happening.”

It’s just like when the weather turns. You know, you’ll have a warm day, and you’ll say, “Ah, spring is here at least,” and the next day it will be cold and it might even snow again. So all you can do is sort of look at what’s going on and say maybe, just maybe this is a bottom, just maybe the worst is behind us. Let’s hope so. But you have to remember that it’s never clear until it’s past.

RAY SUAREZ: David Wessel, thanks for joining us.

DAVID WESSEL: Pleasure.