Not All Regions May Feel Economic Squeeze
SCOTT SIMON, host:
This is WEEKEND EDITION from NPR News. I'm Scott Simon.
Coming up, pigeons and no grass, alas, unfed.
But first, unemployment is up, manufacturing down, consumer spending is weak, and the markets have headed south. The president wants some kind of economic stimulus, including tax cuts. Federal Reserve Chairman Ben Bernanke says stimulus is a good idea. Many in Congress seem to agree.
But there are a number of economists who believe that the economy may not be heading into recession. It turns out that the economy's weaknesses aren't evenly spread across the country.
Brian Wesbury is chief economist at First Trust Portfolios and joins us from our Chicago bureau.
Thanks so much for being with us.
Mr. BRIAN WESBURY (Chief Economist, First Trust Portfolio): It's great to be with you.
SIMON: And what sectors of the economy are hurting most?
Mr. WESBURY: Well, obviously, the housing sector has been really damaged. We've seen a huge drop in building and in home buying. And that's the area that's really been hurt worse. And then, obviously, that follows on to losses at financial institutions. And then, I think retailers are having a problem but not necessarily because people aren't spending as much as kind of retailers built too many stores.
SIMON: Are there other sectors of the economy that are holding their own or even blooming?
Mr. WESBURY: Yeah, absolutely. The biggest one is the exports. And just as a little reminder, the housing sector is 5 percent of GDP. The export sector is 13 percent of GDP. So while this housing decline is really hurt, in fact, dramatic fashion - the 5 percent sector - the housing sector, the export sector is blooming. In fact, exports are up about 13.5 percent over last year. And that's 13 percent of the economy. That's a roaring sector of the economy right now.
SIMON: Some states are hit harder than others?
Mr. WESBURY: Oh, absolutely. You know, it's very clear that, you know, Michigan, Florida, Las Vegas, Nevada, Arizona, California - these are the states that really have been hurt much worse by the housing. And it's really due to overbuilding.
If you go back and look at the data, housing sales peaked in mid-2005 and then started to fall. But home building didn't peak until mid-2006, which means we built a lot of homes while sales were beginning to fall. A lot of that was done in, for example, Florida and Arizona and Nevada. And those states are the ones that are really getting hit because they still have some of these high-rise condos aren't even finished yet. And that means we're getting a real overhang of inventories.
SIMON: Do you see the trouble spreading?
Mr. WESBURY: I don't. I think the economy - the other 95 percent of the economy other than housing looks pretty good to me. It's very clear that we've taken a hit. But this is a huge economy. And when I do the math, if we lose 20 percent of all subprime loans in total losses, total write-downs, that's only about $200 billion. And the economy is a $14.5-trillion economy. So 200 billion is a big number, but it's small when you compare it to the size of the U.S. economy. We're a real juggernaut.
SIMON: I must say your optimism is something that I'm not used to hearing when I watch the financial channels.
Mr. WESBURY: Right.
SIMON: Are you an exception in your industry?
Mr. WESBURY: If you look at the average forecast for 2008, people are saying - economists are saying 2 percent real growth in economic activity. That's not great, but it's not horrible. In fact, in The Wall Street Journal poll, where there's 55 economists, there's only one that is predicting an outright recession.
Now, there are heightened odds of recession, but the actual predictions of economists are for 2 percent real growth in 2008. My forecast is that we have 3 percent growth.
So I'm a little bit more optimistic than the average economist right now, but not that much. I have had periods of time where I've been pessimistic about the economy. And today, I'm not. I just don't - I don't see the damage that's coming from subprime. I don't think it's as big of a problem as it's been made out to be.
I think the proof really should be on the pessimist not on the optimist. And so far, we haven't seen data that's consistent with anything close to a recession.
SIMON: Brian Wesbury, chief economist at First Trust Portfolios in Chicago. Thanks very much.
Mr. WESBURY: Thank you.
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