Stumbling Economy Translates To Stock Volatility

Standard and Poor's downgrade of the U.S. credit rating — coupled with increasing economic uncertainty — is making investors nervous. Stocks on Wall Street have been volatile. Steve Inskeep talks to billionaire investor Wilbur Ross about his thoughts on the nature of the economy.

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STEVE INSKEEP, Host:

During the panic stock selling of the past week, the investor Wilbur Ross was buying. The billionaire says he bought added shares in companies that he already owns. And Wilbur Ross is one of those giving us their perspective on the economy this week. In Ross's view, nothing really changed on the panic selling days except that stocks suddenly grew cheaper.

M: So if there is something that we thought was attractive, it should logically be that much more attractive to us.

INSKEEP: You've seen bargains the last week or 10 days.

M: Oh, we think so. Yes.

INSKEEP: Wilbur Ross made his name finding bargains that others did not want. He's often found ways to make money off struggling old-line industries like bankrupt steel mills. During the financial crisis, he moved into financial services. Another new company rents airplanes to major airlines. And as he considers the months ahead, Wilbur Ross says he sees a lot of economic opportunity. He does not expect a major recession. Though to be clear, his forecast is not exactly rosy.

M: Our forecast had been and continues to be, an economy that just bumbles along; no particular sense of direction. One month, decent numbers, the next month, maybe not so decent numbers. So a kind of stumbling economy, rather than a collapsing economy.

INSKEEP: What does that kind of economy mean for you as a businessman?

M: Well, it means a couple of things. One, it probably means continued volatility in the stock markets, because it will become very much a market of individual stocks as opposed to just a broad market where there's one big happy trend. The second thing is that the keys to us are things like decline in the price of petroleum. We think that $10 a barrel in petroleum is probably worth one or two-tenths of a percent in gross domestic product growth.

INSKEEP: You mean if it goes down $10 a barrel.

M: Yeah, if it goes down or up. If it goes up, it's hurtful. Lately it's been going down. The price of petroleum had really been driven up, mainly by speculation rather than by physical supply/demand characteristics.

INSKEEP: Oh yeah, the war in Libya caused a lot of...

M: Well, yeah, that was psychological. Libya's very small potatoes in terms of world production, so there's clearly no scarcity, it's just a speculative thing.

INSKEEP: What do you think, as someone that observes and tries to understand the markets and the broader economy, is the reason that the economy would just be, as you put it, stumbling along and not really taking off?

M: Well, I think there's several factors. Number one is we believe that unemployment is going to remain high. Virtually all companies we know of have learned to live with fewer employees per incremental dollar of sales than they ever had before. So we believe that part of the high unemployment is due, not just to cyclical factors, but to structural change in the economy. And that's why corporate America is in much better shape than Mr. and Mrs. America.

INSKEEP: Just to make sure I understand that, when you say structural change, you're saying that corporate America has resized or downsized the necessary workforce and it's just not as large as the workforce population in the United States.

M: That's correct. The substitution of capital for labor has been continuing. I think that people have also restructured the way that they do business, all with an eye toward reducing labor costs. And you've seen those big gains in productivity. June was the first month where productivity didn't really go up, actually it declined a little bit. And that's the first month in many, many months where there hasn't been a big productivity gain. So I think that's a problem and it's going to be a continuing problem, partly because the American educational system is not producing people with the qualifications to do the jobs in the new economy.

INSKEEP: Beyond what you've already said, does the United States have some fundamental demographic problem, debt problem, or some other problem that is holding back the economy right now, or it may hold it back for some time?

M: Well, the debt problem is a very big problem, but while we talk about creating jobs in the new economy, for example in green technology, the fact is we're not doing it. China is far ahead of us. So while we've been talking about those being jobs of the future, and I agree that they are, reality is we're not doing it.

INSKEEP: Wilbur Ross, it's always a pleasure to speak with you. Thanks very much.

M: Thank you. Bye bye.

(SOUNDBITE OF MUSIC)

INSKEEP: Wilbur Ross is a billionaire investor whose holdings have ranged from steel mills to financial services to airplanes.

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