Boosting the Economy
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MARGARET WARNER: We get four regional perspectives, starting in New England with Jill Thompson, senior economist at Fleet Boston Financial Corporation. From the Southeast, Mark Vitner, senior economist at First Union Securities in Charlotte, North Carolina, from the Midwest, Morton Marcus, an economist at Indiana University’s Kelley School of Business. And from the West, Ross Devol, director of regional and demographic studies at the Milken Institute, an economic think tank in Los Angeles. Welcome to you all. Jill Thompson, last month 200,000 jobs lost even before, not counting the airline layoffs or anything else associated with the attacks. What does the jobs picture look like in the northeast?
JILL THOMPSON: Well certainly we have seen significant job losses, particularly starting in the spring of this year. The economy started to slow down about six months before that, and we had about a six-month grace period when we looked better than everybody else. But when the high-tech bubble burst, initial claims for unemployment in this area started rising rapidly. Our unemployment rate has now gone particularly in the New England region itself, from significantly lower than the national average, it’s risen by about 1.5 percentage points and is now approaching 4%. So certainly we’ve seen the effects of the slowdown in the economy, and of course there’s more to come.
MARGARET WARNER: Take us– give us an idea of which sectors are the hardest hit and which ones can you attribute the harder times to the general slowdown versus the things that were triggered by the September 11 attacks.
JILL THOMPSON: All of this really pre-dates September 11, all that I’m talking about right now. The first things to slow down were old economy manufacturing, chemicals, plastics, paper. Those started slowing last fall. The next big hit and the more significant one has been the high-tech bubble. When that burst, we lost significant employment in high-tech manufacturing. And Massachusetts in particular had the second largest concentration of high-tech design and manufacturing in the nation. We were kind of a satellite to Silicon Valley. And New Hampshire was not very far behind Massachusetts.
MARGARET WARNER: Could I just– I don’t want to hurry you along but I want to get to other people. What can you attribute the September 11 attacks? Do you have any handle on that from travel, so on?
JILL THOMPSON: Well, certainly there has been a significant slowdown in travel and in New York and out of Logan because of Logan’s reputation right now. I think that airplane loads are running at about 30% of what they were before the attack. Things began to come back certainly today. The airport was very crowded today. But until today things have been pretty dead. And the entire hotel industry, tourism industry hats certainly been significantly affected. That will show up in the October numbers.
MARGARET WARNER: Mark Vitner, how about in the southeast? What is the jobs picture and general economic picture look like?
MARK VITNER: The South was very hard hit by this recession first off because we have such a large manufacturing sector. We pretty much led the nation into the recession and saw it a lot earlier than just about any place else. Since September 11 some of the areas that were still holding up reasonably well have now begun to falter, particularly the Florida area, which through August was still enjoying 3.5% job growth.
MARGARET WARNER: And is that because the tourism industry is off obviously?
MARK VITNER: Yes. The tourism industry took a real direct hit in Florida. And September was actually pretty soft anyway because the school year started a little earlier than normal. But several hotels, tourist destinations within Florida saw occupancy rates drop down into the low single digits and many of the tourist attractions have already instituted layoffs. And during the last week of September, first time claims for unemployment insurance claims doubled.
MARGARET WARNER: Morton Marcus, how about in the Midwest?
MORTON MARCUS: Well, it is interesting to listen to the others talk about their regions. 65% of the jobs lost in the United States in the past year lost have been here in the Midwest largely because of the decline in the automobile industry and also some of the falloff in the electronic industry. The steel industry has been very hard hit. We have a situation where eight of the fourteen states that have actually lost employment over the past year are midwestern states. As far as the airline situation, since the 11th of September, we’ve seen some of the great hubs of the nation almost empty, in Chicago and Minneapolis, Detroit, lesser hubs in Cleveland, in Indianapolis, and St. Louis have all felt the effect.
MARGARET WARNER: Is it too easy– is it too early, I mean, to know whether the slowdown in travel has affected other sectors other than the travel sector? In other words businesspeople who can’t move around or who don’t want to move around. Do you have a handle on that or is it too early to say?
MORTON MARCUS: I think that that is going to be relieved. We’ve already heard that the airports are beginning to pick up. I think by Thanksgiving we are going to see a good deal of travel restored to more normal levels, maybe not setting any records but to more normal levels.
MARGARET WARNER: Ross Devol, give us a picture of the west, particularly California.
ROSS DEVOL: Well, we have been the fastest growing area of the country. California, for example was enjoying employment growth a full percentage point above the national average as recently as June and July of this year. Subsequently we have seen a fairly dramatic slowdown. Of course California and much of the rest of the West was home to the high-tech growth, especially in Silicon Valley. And we have seen the high-tech manufacturing sectors be hit very heavily: Electronics, computer equipment and communications equipment, especially dropped off in sales, telecommunications service firms. We’ve also been hurt by the demise of the dot-coms centered in San Francisco, Silicon Valley and Southern California to a lesser extent. For example, the unemployment rate in Silicon Valley has risen from 2.4% as recently as February of this year to August it was up to 5.5%. So we are starting to see a slowdown here in California and throughout the West. And of course we’re just now going to begin to see the impacts of the slowdown in travel and tourism in our heavily tourism centric areas of the West.
MARGARET WARNER: Jill Thompson, throughout the spring and summer when the markets were going down and business investment was slowing, still consumer spending and housing kept the economy afloat. How do those two look, retail and housing now?
MARGARET WARNER: They were remarkably strong. I think we already see cracks in the consumer. Consumer sentiment fell– was falling very sharply before the terrorist attacks. The University of Michigan released its numbers. They cut it off on September 10. It had fallen to 83. Very seldom, in fact almost never does consumer confidence fall that far and stay there. It usually falls further, and in fact certainly after the attacks, confidence did fall further. We saw record bankruptcy rates, rising delinquency rates, so there were already cracks in the consumer facade. At least initially they’re saving a significant amount of the tax rebates they’ve been getting. And so we’re seeing slower consumer sales all around. I think housing, until now, has been remarkably strong, but even then there is no upward momentum from housing. It’s as strong as it can possibly be. We know that sales have slowed significantly at least in the Northeast. They’re off about 30%. And I think this will begin to be reflected in new housing construction, so that we have potential weakness in both sectors at this point, and that’s contributing to a relatively negative short-term economic outlook.
MARGARET WARNER: Ross Devol, finally – and I want to go to all of you on this — as you know, here in Washington, there’s a big debate about what kind of economic stimulus, with the President wanting now to have mostly tax cuts and a lot of Democrats, members of Congress talking about spending, and a lot of the governors and mayors also asking for spending, I believe. What do you think from the perspective at least where you sit, would be the best, most effectiveness mix?
ROSS DEVOL: I think there has to be a mix and that’s the key. I think we have to look at reducing personal income taxes, accelerating the marginal tax rate that would have kicked in in 2004. And also I think that low income Americans who didn’t get the tax rebate checks this August ought to get a piece of that. But I also think we have to look at business investment and I don’t think reducing the corporate income tax rate right now is the best thing for a short-term stimulus. Long-term you can make a valid claim for that. But I would accelerate depreciation rates, encouraging businesses to invest now rather than later. I also think we have to extend the unemployment insurance compensation as well as providing some fiscal stimulus, which the federal government is already going to be giving to New York and other areas that are harmed by this in helping the airline industry. But I think it needs to be spread across the board. And the corporate tax rate cut I don’t think helps in the near term.
MARGARET WARNER: Morton Marcus, what do you think?
MORTON MARCUS: I think we need a strong spending program. I think the President’s program is a weak program. I think it’s in fact an irresponsible program because it doesn’t really get to the issue. Instead of talking about extending unemployment benefits, I think we need to double the level of unemployment benefits. I’d rather see people getting their benefits for 13 weeks at a much higher level because the level of unemployment benefits for those who are eligible is remarkably low.
MARGARET WARNER: What is wrong with the tax cut idea?
MORTON MARCUS: The tax cut idea doesn’t get out there fast enough. I think the President – if he was really interested in stimulating the economy — would be sending checks to every county, every county government, more than 3,000 of them, let them go out and start buying capital equipment that they need. Let them be replacing cars and trucks that they need. Let them replace computers or put computers into schools where they don’t have them. Let’s get those high-speed lines into our schools. We’ve been talking about a lot of things in the public sector for a long time. It’s time to do it. Send $270 per person as indicated in the census to each county and I think you’ve got a method for doing this. You don’t have to go through all kinds of formula and paperwork. It’s a quick spending program.
MARGARET WARNER: Mark Vitner, how would you design the package?
MARK VITNER: Well, I would go with the tax cuts. And they can come very quickly; they can be phased in on January 1 and possibly sooner. But in terms of unemployment benefits, the most important thing is that we give people jobs not double benefits. And in the interim you have to take care of these folks but the most important thing is to get them jobs. Hopefully they won’t have to go 26 weeks on unemployment. Hopefully they can get a job. The one thing you know I think missing is regulatory reform. We have to allow for some consolidation in the telecom industry. That’s where we have tremendous excess capacity and until we get rid of the excess capacity we won’t see a resurgence in orders for telecom equipment.
MARGARET WARNER: And, Jill Thompson, a brief final word from you on what the mix should look like.
JILL THOMPSON: I really favor personal income tax cuts at this point, extension of unemployment compensation. I think accelerated depreciation may help the balance sheets of companies right now. I don’t think it will do anything to stimulate investment. There is just so much overcapacity that no matter how cheap you make financing it, you are not going to stimulate demand for it until we see demand in the rest of the economy pick up. I don’t like the idea of federal spending because I don’t think we can put in a short-term stimulus program that will do anything but waste money. Repave more roads instead of build new classrooms. Those need more planning.
MARGARET WARNER: All right. Jill Thompson, gentlemen, thank you all very much.