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'New Economy' Hasn't Put an End to Business Cycle

2000 / 2001 REVIEW & OUTLOOK | Rough Sailing Ahead?

December 31, 2000|JONATHAN PETERSON and STUART SILVERSTEIN | TIMES STAFF WRITERS

No less a figure than the president-elect has been publicly ruminating about the possibility of a recession. But most analysts are less gloomy.

Gibson, for example, remains confident that foreign investors will keep their money in this country despite the declining dollar, because the United States still offers a unique combination of profit and safety. In fact, he regards the weaker dollar as a blessing that could boost U.S. exports by lowering their cost.

At the same time, Gibson sees trouble in the job market, citing a recent climb in the number of people filing initial claims for state jobless benefits. The four-week moving average of claims rose to 347,250 in mid-December, the highest since July 1998, although it declined in the week ended Dec. 23.

And when the economy is downshifting, as it is now, it is at its most vulnerable, he said. "We could be looking at a pretty weak first quarter," he said, "but I'm not sure I'd call it recession."

Computerization May Ease Cycles

Other analysts say it's too soon to play down the beneficial effects of the new economy. The information revolution may not have abolished the business cycle, but it could work to reduce the economy's peaks and valleys.

Recessions often start because businesses misread the marketplace and build up large inventories that they can't sell. They respond by slashing factory orders, and factories then lay off workers.

Many analysts believe that corporate America should be able to navigate more efficiently through such waters because computerized records should allow it to identify inventory buildups sooner.

"Given the conditions as they are now, the gloom and doom is unwarranted," said Ben Herzon, an economist with Macroeconomic Advisers in St. Louis. His firm predicts a relatively healthy 3% U.S. growth rate next year--compared with this year's 3.6%--and a weak first half followed by more robust growth in the second.

"If we get a rate cut by the Fed, and if we get tax relief by the second half of next year, it certainly doesn't look like it's going to be a recession," Herzon said. "Our modeling of the economy suggests it would take much bigger shocks to get a recession."

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