While there are almost daily stories in the media about the economy, many of them suggesting that it is faltering -- with eroding confidence, spending and prospects for improvement in the immediate future -- every time we run such a piece we get email suggesting that we need to, as Monty Python used to sing, “look on the bright side of life.”
Many of these emails come from members of the MNB community who say, no, the recession was really during the Clinton presidency, and that the Bush economy has been a recovery economy. That may be technically true, but we don't think many citizens would agree with the assessment that the economy is getting better.
To get a sense of what is really going on with the economy, we went to Dr. Ira Kalish, Senior Vice President, Chief Economist, and Director - Global Retail Intelligence Program, for Retail Forward, Inc., for this exclusive e-interview:
MNB: What’s your take on the shape of the economy?
Dr. Ira Kalish: I don't think that the economy is getting better. There are substantial imbalances left over from the 1990s that must be unwound before the economy can start to grow. For example, consumers are laden with debt and their assets have been diminished by the equity market collapse. Therefore, they must rebuild savings in order to achieve their retirement goals. This will restrain spending. Also, businesses have excess capacity in IT and telecoms. So business investment will be restrained. Exports are not growing rapidly because of slow growth in Europe and Japan.
On top of this, US fiscal policy is perceived as irresponsible by financial markets, thus elevating long-term interest rates above where they would otherwise be. This is hurting stock prices as well.
Is it an accurate perception that an awful lot of people and companies are in a holding pattern waiting to see if there will be a war or how it will turn out? We know people who haven’t had their 2003 ad budgets approved yet, and there seems to be a sense of delay, delay, delay.
Dr. Ira Kalish: I think that businesses are putting many investment decisions on hold. It is also possible that some consumers are delaying big-ticket purchases.
If there is a war, one scenario is that it is over quickly, Iraq proves to be less of a threat than expected, and things go back to “normal.” What would be short and long term impact of that scenario on the economy?
Dr. Ira Kalish: There are two ways in which a war will affect the economy. First, it will distract and scare people. That means more time watching the war on TV and less time shopping. It means less travel and less time spent in large venues -- especially if the war is accompanied by terrorist attacks.
Second, the war will have some impact on the price of oil – an impact that is awfully hard to predict. It depends on what Saddam Hussein does. If he destroys his own facilities and/or attacks Kuwaiti facilities, the price of oil could rise precipitously. On the other hand, the Saudis are expected to increase production, and Bush could release oil from the Strategic Petroleum Reserve. Either would restrain an increase in the price of oil. Still, any increase in the price of oil is similar to the impact of a tax increase. It means less money in people's hands
And what happens if it is harder and longer than expected...would that be devastating to the economy?
Dr. Ira Kalish: A longer war means a longer-term increase in the price of oil, and more time spent watching TV. The result would be a longer effect on overall economic activity. It would be particularly devastating to the airline industry.
Even if the Iraq situation is resolved, what is the ongoing impact of terrorist concerns on the economy?
Dr. Ira Kalish: I think that the main impact of terrorist risk has been to restrict air travel. The travails of major airlines is indicative of this.
So what’s your best guess for how 2003 will end up from an economic perspective? And what do you expect for 2004?
Dr. Ira Kalish: Best guess? I'd say that there will be a quick war in Iraq, a small spike in oil prices, and very modest growth in economic activity.
Many of these emails come from members of the MNB community who say, no, the recession was really during the Clinton presidency, and that the Bush economy has been a recovery economy. That may be technically true, but we don't think many citizens would agree with the assessment that the economy is getting better.
To get a sense of what is really going on with the economy, we went to Dr. Ira Kalish, Senior Vice President, Chief Economist, and Director - Global Retail Intelligence Program, for Retail Forward, Inc., for this exclusive e-interview:
MNB: What’s your take on the shape of the economy?
Dr. Ira Kalish: I don't think that the economy is getting better. There are substantial imbalances left over from the 1990s that must be unwound before the economy can start to grow. For example, consumers are laden with debt and their assets have been diminished by the equity market collapse. Therefore, they must rebuild savings in order to achieve their retirement goals. This will restrain spending. Also, businesses have excess capacity in IT and telecoms. So business investment will be restrained. Exports are not growing rapidly because of slow growth in Europe and Japan.
On top of this, US fiscal policy is perceived as irresponsible by financial markets, thus elevating long-term interest rates above where they would otherwise be. This is hurting stock prices as well.
Is it an accurate perception that an awful lot of people and companies are in a holding pattern waiting to see if there will be a war or how it will turn out? We know people who haven’t had their 2003 ad budgets approved yet, and there seems to be a sense of delay, delay, delay.
Dr. Ira Kalish: I think that businesses are putting many investment decisions on hold. It is also possible that some consumers are delaying big-ticket purchases.
If there is a war, one scenario is that it is over quickly, Iraq proves to be less of a threat than expected, and things go back to “normal.” What would be short and long term impact of that scenario on the economy?
Dr. Ira Kalish: There are two ways in which a war will affect the economy. First, it will distract and scare people. That means more time watching the war on TV and less time shopping. It means less travel and less time spent in large venues -- especially if the war is accompanied by terrorist attacks.
Second, the war will have some impact on the price of oil – an impact that is awfully hard to predict. It depends on what Saddam Hussein does. If he destroys his own facilities and/or attacks Kuwaiti facilities, the price of oil could rise precipitously. On the other hand, the Saudis are expected to increase production, and Bush could release oil from the Strategic Petroleum Reserve. Either would restrain an increase in the price of oil. Still, any increase in the price of oil is similar to the impact of a tax increase. It means less money in people's hands
And what happens if it is harder and longer than expected...would that be devastating to the economy?
Dr. Ira Kalish: A longer war means a longer-term increase in the price of oil, and more time spent watching TV. The result would be a longer effect on overall economic activity. It would be particularly devastating to the airline industry.
Even if the Iraq situation is resolved, what is the ongoing impact of terrorist concerns on the economy?
Dr. Ira Kalish: I think that the main impact of terrorist risk has been to restrict air travel. The travails of major airlines is indicative of this.
So what’s your best guess for how 2003 will end up from an economic perspective? And what do you expect for 2004?
Dr. Ira Kalish: Best guess? I'd say that there will be a quick war in Iraq, a small spike in oil prices, and very modest growth in economic activity.
- KC's View:
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Retail Forward does great work in this area, synthesizing much of the intelligence that is out there about retailing and the economy, and predicting what is in store for consumers, retailers, and manufacturers.
We’re looking forward to attending its 2003 Strategic Outlook Conference, “Retailing 2010,” scheduled for April 8 in New York City and April 10 for Chicago. There will be numerous speakers, including Dr. Kalish, on a wide range of important subjects that will help us all prepare for short term and long term challenges.
You can find more out about the conference by going to…
http://www.retailforward.com/freecontent/conf/2003_mb/2003overview.asp
…or by clicking on the conference logo over on the right hand side of the page,
