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Consumers and the Economy

SUSIE GHARIB: Joining us now to talk more about the implications for the economy, Lakshman Achuthan, economist with the here in New York. Hi, Lakshman. Nice to see you.


GHARIB: Well, it's a pleasure. And we'd really like to get your analysis of today's consumer confidence report. What's your read on that?

ACHUTHAN: Well, it certainly is something to be concerned about. But when we're looking at forecasting the business cycle, we have to be a little bit more careful and look beyond the headline numbers. And we look particularly at the expectations component, what are consumers expecting about the future. And we do see a significant drop there, but we, again, must keep it in perspective. If we look back at the 1991, '92, '93 jobless recovery, we see that these consumer expectations numbers plunged a lot further than they've done so far here. So I think it's premature to conclude that the worst is about to occur.

GHARIB: But one thing that's been going on so far in this weak economy, we've seen that consumers have been propping up the economy. They've been buying houses, they've been buying cars. In today's report it seemed like consumers are getting less confident because the job market is getting shakier and in the survey they said that getting, you know, jobs are hard to get. That aspect of survey was up 27 percent. You don't see a shift here?

ACHUTHAN: Oh, no, there's a shift in uneasiness because I mean they're looking at the same headlines that we're looking at, which are, you know, on balance, pretty negative. So I think when consumers look at the economy, they're very uneasy. But when they look at their personal situation they have enough confidence to do some pretty impressive buying of houses and cars and a lot of other things. So we are at a tipping point here. I think the job market is the key. We always watch this monthly job report that we're getting at the end of this week very closely and this time around it's going to have an even heavier weight. We really do want to see at least some stability in the job market.

GHARIB: Lakshman, many economists are predicting now that the odds are pretty strong that the Federal Reserve will cut interest rates when they meet next week. But you don't agree with that. Tell us why.

ACHUTHAN: Well, I think, I mean you're right. It's about a 90 percent chance that they're going to cut significantly or something. And I don't agree because if you're looking, they've already done a lot. When they are easing, if you are thinking about that to do with policy or saying you want to bring down long-term interest rates because that's what fuels the economy, and as you were reporting just a moment ago, they're very low. I don't know how much lower they can go. And also, when we're look forward, it's not at all clear that a recession is on our doorstep. As we mentioned, we've seen in a slow recovery that there's a lot of cross currents and people want the recovery to be happening faster, but, you know, it doesn't mean that we're having a recession right away. It's not the doom and gloom scenario.

GHARIB: All right, but Lakshman, let's just say that the Federal Reserve does cut interest rates. Will this interest rate cut do anything to revive the economy?

ACHUTHAN: It, I'd like to see what it does for long- term interest rates. If they can drop significantly from here, and maybe they can, that would be some real stimulus, added stimulus for the economy. But I think pretty much anyone who needs to borrow money has access to money. So I'm not sure how much of a push it has. It certainly doesn't have the push that it had when they began cutting rates.

GHARIB: All right, Lakshman, thank you very much.

ACHUTHAN: Thank you.

GHARIB: Great to have you on the program. We've been speaking with Lakshman Achuthan with the Economic Cycle Research Institute.