Markets 'Worry' Economy Is Running Out Of Steam

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Financial markets have been jumpy all year — especially so in the last few weeks because of all the gloomy news about the economy. David Wessel of The Wall Street Journal talks to Renee Montagne about the recent activity in the financial markets, and where the economy is headed.


We're going to spend some minutes with the economy now. Financial markets have been jumpy all year, and especially so in the last few weeks because of all the gloomy news about the economy.

To find out what's going on, we've asked David Wessel to join us, as he often does. He's economics editor of the Wall Street Journal - and just back from vacation, David. Welcome back.

Mr. DAVID WESSEL (Economics editor, The Wall Street Journal): Thank you.

Mr. WESSEL: Thank you.

MONTAGNE: So, let's begin with the markets. What have the various markets been doing, and what do they tell us about where the economy is headed?

Mr. WESSEL: Well, despite a surge on Friday, following Federal Reserve Chairman Ben Bernanke's vow to rescue the U.S. economy if it needs help, the stock market has been kind of lousy lately. The Dow Jones Industrial Average is down about 4 percent this year. The Standard & Poor's 500 Index, down about 7 percent. All that while, the economy has been growing a bit, and profits have been very strong.

We see global investors fleeing to the safety of U.S. Treasury debt, and we've seen big swings in the value of various currencies - the euro, the dollar and the yen.

I think if you add it all up, the markets are showing understandable signs of worry that the U.S. economic recovery is running out of steam prematurely and that with lots of unemployment, lots of unused factories, and lots of empty office buildings - and that the government can't, or politically won't, do enough to get it going again at a more reasonable rate.

MONTAGNE: Has this been a change in mood? It feels that way.

Mr. WESSEL: Oh, I think so. Since the spring, the outlook has really darkened. Several reasons for that. One is, we keep getting new data on the economy about housing, business capital spending, plans, etc., and most of it has been negative.

Just on Friday, the government said, well, the economy didn't grow at a 2.4 percent annual rate in the second quarter. It grew only 1.6 percent - when they got all the data in. That's discouraging. And so the optimists on Wall Street are throwing in the towel and saying the second half of the year is going to be disappointing.

Businesses are very cautious, particularly about hiring, and that's really important. Intel, which - while is doing this buying overseas, said last week it's worried about the demand for personal computers. That hurts the sales of the chips it makes.

We'll get more information this week, but there's been signs of worry there. And then finally, there's been this renewed focus on deflation, a decline in prices and wages throughout the economy. That's a big problem. It makes it hard for the Federal Reserve to manage the economy. And it also makes paying back debts - of which we have a lot as Americans - harder, so that deflation fear has come right back to the front stage lately.

MONTAGNE: You know, a country that's had a lot of experience with deflation, of course, is Japan. And this morning, there was news out of Japan that the government was taking some slightly bolder steps to try and boost the economy there.

Mr. WESSEL: Yeah, that's right. It's sort of interesting. Japan has been completely out of the headlines for some time, overshadowed by China, the U.S. and Europe. But they've had a weak economy. They've been, as you point out, battling mild deflation for years now, and things took a turn for the worse there. As the whole global growth outlook sags, their outlook sags. They have fears of renewed deflation there. And their currency has soared for various reasons, and that's endangering their exports, which are important to their growth in Japan. They're a real export powerhouse, and all this happens at a time of political turmoil.

So today, the Bank of Japan said it's going to pump more credit into the economy - 10 trillion yen more credit - in an attempt to get things going again and to prevent the yen from rising. It met with a great deal of - not enough from the markets right off. And the government there, which is in huge debt already, is thinking of new fiscal stimulus to try and get things going again.

MONTAGNE: Is there any good news in the economy?

(Soundbite of laughter)

Mr. WESSEL: That's a good question.

MONTAGNE: Anywhere in the world?

Mr. WESSEL: Yeah, actually, there is. Let me give you three examples. One is: Europe is doing better than expected, especially Germany. The Congressional Budget Office told us last week that the much-criticized TARP Program - the Troubled Asset Relief Program that bailed out the banks - is going to cost us, over its lifetime, $66 billion. That's a lot, but it's a lot less than the $350 billion it said when the program started a few years ago.

And then, of course, there's always somebody who makes money in adversity. Hormel Foods, the century-old company that makes Spam, which is, I guess -which people turn to when time are tough...


Mr. WESSEL: Well, their stock is up 12 percent this year. It's hit an all-time high because at times of crisis, I guess people turn to cheap staples, and they make them.

MONTAGNE: Boy, don't you wish you had been buying Spam stock two years ago?

Mr. WESSEL: As long as I don't have to buy the Spam, yes.

(Soundbite of laughter)

MONTAGNE: David, thanks very much for joining us again.

Mr. WESSEL: You're welcome.

MONTAGNE: David Wessel is the economics editor of the Wall Street Journal.

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