Economy Lags Behind Stock Market As 2009 Ends
STEVE INSKEEP, host:
It's MORNING EDITION from NPR News. I'm Steve Inskeep.
Well, the economy is ending the year on a more hopeful note than it began, especially the financial markets. Of course, to say it's more hopeful than at the beginning of this year isn't saying that much. Let's talk about the year in finance and what lies ahead for 2010 with David Wessel, economics editor of the Wall Street Journal.
David, good morning.
Mr. DAVID WESSEL (Economics editor, Wall Street Journal): Good morning.
INSKEEP: Ok. The stock market is a little better than it used to be.
Mr. WESSEL: The stock market's a lot better than it used to be. The problem is that the economy isn't. The Dow Jones Industrial average is 60 percent - 6-0 percent higher than it was at it worst point in March, 2009. And the big question is what will 2010 bring? Will the stock market come down to meet the economy? Will the economy move up to the meet stock market? We don't really know.
INSKEEP: I wonder if it's an indication of the stock market, is less an indicator of the economy than of an economy forecast and of people's mood. And people were panicky at the beginning of the year and stocks really, really plunged. And now people are more optimistic about the direction the economy's headed in.
Mr. WESSEL: Absolutely. In one sense, the stock market is giving a giant sigh of relief that we're not sitting here talking about another Great Depression. And so stocks were pressed down by fear and they've rebounded on hope that the economy's getting better and it is. After all, the economy appears to have been growing since the summer.
And economists expect the fourth quarter to have growth of about 4 percent. That's not great after a deep recession, but it would be the best quarter for growth we've had since the beginning of 2006.
INSKEEP: Now, financial institutions that were at the center of the crisis. I understand that they're better off than they were, but how much better off really?
Mr. WESSEL: The big banks are - or most of them - are clearly in much better shape. A couple are still in trouble. GMAC, the auto finance house, is unable to raise capital privately and is getting more government money.
The problem now seems to be in the smaller and midsize banks, which have huge portfolios of commercial real estate, which is still a big problem. and so they are the next wave of issues. So far this year, 133 banks have failed and more are likely to fail in 2010.
INSKEEP: Financial institutions are not necessarily loaning as much money as they were. Is that going to change?
Mr. WESSEL: What's gone on is two things, I think. One is the markets are doing better and some of the very big financial intuitions are making money, but they're making it rather than lending to businesses and consumers. And some of the smaller institutions really are burdened by bad portfolios and are unable to lend. So the economy can't really return to something near normal until the banks resume lending again. And so far they've been stubbornly resistant.
INSKEEP: I want to move to Main Street here a little bit. Unemployment is still pretty high.
Mr. WESSEL: Unemployment is very high. The economy is growing but not fast enough to reduce the unemployment rate. Economists are hopeful that maybe the early January numbers will tell us that employers started to add workers in December, which would be the first time in two years.
But the economy has lost seven million jobs since the recession began two years ago. And it's going to take an awfully long time, two or three years, to regain those. And that's a real problem, not only for workers but for businesses that depend on selling to workers who don't have paychecks.
INSKEEP: I want to ask about another thing, David Wessel. From time to time, you have raised the question with us about whether we are changing into a different economy. We had an economy where people hardly saved anything for a while. suddenly the savings rate has gone back up. there's talk of a more prudent and maybe less, slightly less, consumer-based economy emerging out of this. Now that a little time has passed and we're heading into a new year, do you see any sign that the economy really is fundamentally changed?
Mr. WESSEL: I think the economy is changing. And one of the ways in which it's changing is the way in which you described. There is ample evidence that consumers are behaving differently. That they are saving more because they realize that relying only on your house going up is not a great way to save for retirement.
And one of the things that convinced me it's really happening is that consumer product companies who make money by gauging what consumers are going to do next are preparing for that eventuality. They're changing their marketing to move away from conspicuous consumption to kind of good value for money. A number of firms, Proctor and Gamble, for instance, instead of adding a new, fancier detergent, are adding a cheaper, low end detergent.
INSKEEP: So this might be a little like the Great Depression in that people's spending habits change look after the economy improves?
Mr. WESSEL: A little like the Great Depression, yes, although, we don't know for sure that this is lasting. I think there's ample evidence to believe it will, but we won't know for a couple of years.
INSKEEP: David Wessel of the Wall Street Journal, Happy New Year.
Mr. WESSEL: Same to you, Steve.
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