JUDY WOODRUFF: How is the national economic picture looking from Main Street, USA? Jeffrey Brown has that story.
JEFFREY BROWN: As the holiday shopping season reached its climax this week, concerns about the U.S. economy were much on the minds of shoppers, businessmen and policymakers alike.
The key question: Are we headed for a recession?
While retailers held out hopes, early tallies suggested that sales between Thanksgiving and Christmas had probably not been as robust as expected.
Elsewhere, the depths of the housing crisis remain a major uncertainty. Home foreclosures for November were up more than threefold from a year ago. Home prices have been falling in many parts of the country, and new home construction recently plummeted to its lowest level in 16 years.
Energy costs are also being watched, as the Energy Department predicted gas prices will rise to a nationwide average of $3.11 per gallon next year, a 10 percent increase from 2007.
And the dollar’s slide has continued. This year, the dollar fell 9 percent against the euro, making foreign travel and imports more expensive, but helping some American industries export their products.
In the meantime, Wall Street markets are still up for the year, but volatility has been the watchword of the last few months, with single-day declines of 200 or more points becoming routine.
The most recent employment data showed a mixed picture of job losses and gains in different sectors of the economy, while the overall unemployment figure held steady.
For its part, the Federal Reserve has pushed through several interest rate cuts in the hope that that will be enough to keep the economy from tilting further south.
And we take our own snapshot around the country now with four business writers and editors. Michael Armstrong is deputy business editor of the Philadelphia Inquirer. Susan Tompor is a business and financial columnist at the Detroit Free Press. Chris Lester is a columnist and business editor at the Kansas City Star. And Kathy Kristof is a reporter and syndicated personal finance columnist for the Los Angeles Times.
Economy is still fairly stable
JEFFREY BROWN: Well, Michael Armstrong, we'll start in the East tonight. What are the main concerns in your area?
MICHAEL ARMSTRONG, The Philadelphia Inquirer: Well, we have concerns, but I would have to say that Philadelphia is one of those areas where we probably are making out better than most. We kind of have a Goldilocks regional economy in that we never, even when a recession occurs, we never fall too far or boom too high.
If there are concerns, it's more about what lies ahead. Will the job market slow down? Will businesses stop investing?
JEFFREY BROWN: Are there particular businesses, particular sectors that you've got your eye on?
MICHAEL ARMSTRONG: The sectors that we really have our eye on are our major sectors, which tend to be health care and education, higher education. That accounts for a very high percentage of our economy here. And that's why we tend to be more stable.
Where we seem to be a little more vulnerable would be in the pharmaceutical sector, because there are a lot of challenges in that business. And companies like Merck, Glaxo, and Johnson and Johnson, and Wyeth have very large operations here.
JEFFREY BROWN: Chris Lester in Kansas City, what are the biggest concerns where you are?
CHRIS LESTER, The Kansas City Star: Well, we're watching the housing market a bit, but we haven't softened as much as you might see in a lot of the coastal markets at this point.
Actually, the general tenor of my comments would echo Michael's. We're coming through OK. We're not a boom economy; we're not a bust economy.
And the forecast going into next year is that the regional economy here in Kansas City will outpace that of the nation as a whole. So we're making out OK right now.
And, frankly, a real source of strength for us has been the agricultural economy and some exposure to the energy economy here in Kansas City and in the region. You know, a lot of farmers are making good money for the first time in 20, 30 years.
JEFFREY BROWN: All right, we'll come back to that. Susan Tompor, we were asking about whether the U.S. economy might be going into recession. I guess in Michigan you've beaten the rest of the country there?
SUSAN TOMPOR, The Detroit Free Press: Yes, we definitely have. Goldilocks left long ago with that Goldilocks economy; this is the big bad wolf.
And the big bad wolf is here in Michigan with foreclosures, falling home prices, 11 percent, one of the top three areas in falling home prices, job losses, buyouts in the auto industry, thousands of people really, really worried about their economic future in 2008.
JEFFREY BROWN: And in what ways does that show itself in terms of, oh, consumer confidence or what you're seeing this retail season?
SUSAN TOMPOR: Well, we're seeing a lot of discounting. The retailers really had to fight for their money this holiday season.
I was at the mall this morning, no trouble getting a parking spot. That wasn't true all holiday season, of course, but the retailers were marking down left and right, couponing, doing whatever they could to really get this thing going.
One benefit we have had here in Michigan is we are near Windsor, a Canadian border in Detroit, so we have a lot of Canadian shoppers taking advantage of the currency change. So we do have some benefit from that. And the retailers have been selling to the Canadian consumer. But it is...
JEFFREY BROWN: Kathy Kristof -- I'm sorry, go ahead.
SUSAN TOMPOR: But it is a very tough environment here. People are very worried. They're very worried about if they'll still be working. How will they make their home payments, adjustable rate mortgages? It's a time of great concern here in Michigan.
JEFFREY BROWN: All right. Well, Kathy Kristof, I know it's not that bad in Southern California, but tell us first what the concerns are out there.
KATHY KRISTOF, The Los Angeles Times: Finance and real estate are the big concerns. We also have the big writers strike, which can really decimate Hollywood, and that's a big industry here.
But we have relative strength in oil, and small business, and technology, so we've got a real mixed bag in L.A.
Main Street/Wall Street divide
JEFFREY BROWN: Tell us -- we've heard a lot about the volatility on Wall Street. Do you see much of that affecting Main Street? We've also heard about the subprime mess, you know, hitting a lot of big banks. How much of that trickles down to Main Street, to real people?
KATHY KRISTOF: You know, the funny thing is we all want to act like Wall Street has got some, you know, finger on the pulse of Main Street, but it doesn't. Wall Street is completely flummoxed by the subprime crisis. They're petrified, and they should be.
Main Street is not. Main Street is more affected by jobs. And right now, the unemployment rate is pretty stable. People are still out in the malls and shopping.
And consumer spending accounts for so much of economic growth that we're not seeing a big pullback. We're seeing a moderate, you know, like slowing down of spending, but really not seeing a lot of death and destruction on Main Street.
JEFFREY BROWN: People are in the malls. So can you -- is there an assessment out there yet of the Christmas holiday retail season?
KATHY KRISTOF: You know, it's never as good as the retailers want it to be, right? But I don't think it was altogether bad.
JEFFREY BROWN: Michael Armstrong, do you see any disconnect between Wall Street and Main Street, in terms of economic news and how it hits people in their pocketbook or in their homes?
MICHAEL ARMSTRONG: It's not so much a disconnect, I think. I think a lot of people on Main Street, as you walk around and talk to them, are concerned about the volatility that they're hearing about on Wall Street, but they're not -- we don't really have that big of an exposure as just people, as citizens, to Wall Street, except in maybe our 401(k) plans.
It's more, my job, how is it going? Am I seeing people being laid off? Is my company thinking about not opening an office that they've been talking about? That's where we get concerned.
JEFFREY BROWN: And that psychology, of course, we've heard so long, for a long time, about how consumers are the ones driving the economy. So do you still see that where you are, just in terms of this holiday shopping season? What did you see?
MICHAEL ARMSTRONG: What we've seen is, as I think Susan and Kathy have said, that when you go to the mall you can easily get a parking space. Maybe a lot people were out on the Internet clicking away and buying online, but you could certainly get into a mall very easily this year. You may not have been able to find a check-out clerk, but you could buy your Christmas stuff.
JEFFREY BROWN: Susan Tompor, to go back to that Wall Street and Main Street mix, you have a company like Chrysler that's gone private. Does the credit crunch hit where you are in a particular way?
SUSAN TOMPOR: I think it does hit where we are in a particular way, with Chrysler being taken over by a private equity firm that was spun off by Daimler-Chrysler earlier this year. We're looking at 25,000 job cuts at Chrysler, very serious. That's a third of the workforce now, because of this credit crunch situation.
You also had the higher oil prices, maybe, that we didn't mention earlier here in Michigan. How is that going to affect the auto industry?
But when you have a private equity firm that's done a lot of borrowing, does, you know, possibly cutting more, when the auto industry is going to be weakening, that's scary stuff here. And that's where the credit crunch translates indirectly into pocketbooks and paychecks here in Michigan.
Agriculture, low dollar aid exports
JEFFREY BROWN: Chris Lester, you started to tell us about the agriculture economy there. Tell us a little bit more about why it, in particular, seems to be doing well.
CHRIS LESTER: Well, part of it's the ethanol bubble, if you want to use that phrase. Corn prices are going at $4 a bushel. Wheat, soybeans are trading at $10 a bushel. Those are prices you haven't even in eons, if ever, so that's really helped out farm income.
We've seen a lot increasing values of farmland. They're trading at extremely high prices right at the moment. There's a lot of people in this part of the country that are making a pretty good living and, as I said, for the first time in years and years and years.
Another thing that's interesting to point out, what we're having are rolling sector recessions. And you can say the housing market is in recession. And you can say the automobile sector is in recession. Here in Kansas City, we got extremely fortunate, as GM and Ford restructured over the last year or two. We have two plants here in town.
And as the companies shall rank and reallocated work and whatnot, more work has come into the two local plants here in Kansas City. So that's been an enormously fortunate turn of events here in Kansas City that's helped us kind of ride through this in relatively good shape. So those are the things that are going on here.
JEFFREY BROWN: And that weak dollar that I talked about in the introduction, I suppose you're in an area where that can help some individuals?
CHRIS LESTER: Absolutely. Absolutely. It does help. It's not necessarily healthy in the long term for the dollar to keep getting weaker, but in the short term, at least, if you're an exporter, you're going to do well. You're more competitive overseas.
JEFFREY BROWN: Kathy Kristof, explain more about that dollar, its upsides and downsides, and how it affects people?
KATHY KRISTOF: Well, for us, we're a major trade center, so we definitely see some of the benefits of increased international trade. It's easier for us now to sell our goods overseas.
It's a little bit harder for manufacturers overseas to sell their goods over here, because everything is comparatively more expensive. But generally speaking, when everything comes through the L.A. port, we have people working.
So for our little segment of economy, that's helpful, because, you know, in our little segment of the economy, as you were talking about with the rolling recessions, we definitely have a rolling recession in real estate. And that has historically been very important here. And so it's these other little enclaves that are providing points of light that are keeping us quite afloat.
Future depends on job market
JEFFREY BROWN: So just staying with you, as you look forward to 2008 -- I don't want to make you look into the crystal ball, I guess -- but, well, take a peek for us. I mean, what exactly do you look at? Is there a particular industry, company, even person you know that you use to help you look ahead and see what might happen?
KATHY KRISTOF: Well, you know what? I really think so much depends on jobs. I won't try and prognosticate, because the Psychic Network went bankrupt and they didn't predict it, and I always thought that that was telling me that I shouldn't try and tell you what was going to happen.
But I think that the jobs number is the one that really is pivotal to everybody, because that is what determines whether you have the money to keep afloat. And as long as that's relatively stable, I think there are a lot of signs of strength.
But, you know, certain segments of the economy are so weak that I think it's made everybody a little bit nervous. And so what the tipping point is just going to be a little bit more on edge right now. You know, you see that in Wall Street, with the swings up and swings down, you know, 200, 300 points.
Well, that's a sign of how nervous everybody is, and that's because there are so many segments of the economy that are really doing poorly. And there's concern that those segments could push everything else off the cliff.
And, obviously, if that happens, like I said, I think where we'll see it and where it will really start to hurt is if it starts causing companies to lay people off, because if people are laid off, then they don't make their mortgage payments. There's more foreclosures. And nobody can spend. It's like a rock rolling downhill.
JEFFREY BROWN: Michael Armstrong, same thing to you, as a last question. Where do you look to decide or to try to forecast ahead?
MICHAEL ARMSTRONG: We try not to depend on one industry, but we do have a very large credit card industry in northern Delaware, where -- it used to be MBNA and First USA were very large credit card companies taken over by JPMorgan.
They are experiencing higher default rates. And so we have a lot of people who work in this area who will be nervous if that trend continues, as well as the home mortgage business. If banks and all kinds of lenders stop lending money, all of us are going to start feeling it, whether we have good credit or bad credit.
JEFFREY BROWN: And, Susan Tompor, any silver linings there in Michigan?
SUSAN TOMPOR: I'd like to say there are. You know, we do have a little bit of growth here with engineering and that sort of thing. But I fear that many people here are looking at Michigan as perhaps the stepchild that, you know, we can forget about in the U.S. economy, that maybe here the things in Michigan are isolated.
And my concern is that, of course, that may not be true at all in 2008, that this may be the beginning, this might be the epicenter here in Michigan of what could be a national recession. You don't have the Fed cutting rates with the intensity that they have been because they're not worried about a U.S. recession. They're not doing it to help Michigan.
JEFFREY BROWN: And a brief final word from...
SUSAN TOMPOR: They're doing it...
JEFFREY BROWN: I'm sorry. I wanted to get a brief final word from Chris Lester. Do you see that rolling recession from Detroit hitting the rest of the country, especially where you are?
CHRIS LESTER: It's possible, and I think Kathy really nailed it. You've got to watch the jobs. If the unemployment rate were to spike a point in a very short period of time, we could tip into a recession.
So I think Kathy's absolutely correct. That's the data point that will ultimately be the most important.
You know, everybody is always talking about recession. We're always historically -- we're always headed for a recession. It's just a question of when we have them. And I think the more you talk about it, the more likely we'll have one, because it's mass psychology.
There's an old joke that, you know, 100 of the last 10 recessions were predicted, and we just have to watch that, as well, because there's a lot of mass psychology involved.
JEFFREY BROWN: OK. Four views from around the country, thank you all very much.