Amid Financial Woes, Recession Talk Grows
MELISSA BLOCK, Host:
From NPR News, this is All Things Considered. I'm Melissa Block.
ROBERT SIEGEL, Host:
And I'm Robert Siegel. Remember how on Monday the stock market tanked nearly 800 points and then how it bounced back on Tuesday? That day the Dow recovered more than half of its loses. Well, today much of those gains were wiped out. The Dow fell about 350 points, and it sits not far from where it finished on Monday.
BLOCK: In Washington, a big vote looms tomorrow in the House on a revised and expanded version of the $700 billion financial bailout plan. In a moment, we'll hear about some of the more unusual additions to that bill. President Bush and congressional leaders spent the day trying to convince lawmakers to join the side of the yes votes. As NPR's Jim Zarroli reports, those efforts come at a time when many economic indicators have taken a serious turn for the worse.
JIM ZARROLI: Until about a month ago, economist Charles Schultze of The Brookings Institution thought the U.S. would probably avoid a recession. Now he thinks the odds are no better than 50-50.
CHARLES SCHULTZE: The last month or so, the contagion that came from the huge loses on subprime loans began to affect the real economy, principally by just making it much harder to get credit.
ZARROLI: Schultze is not the only economist who has become more pessimistic. There are lots of reasons for that. Manufacturing output is down, consumption is too. Today came word that the U.S. commercial paper market shrank dramatically for the third straight week, meaning businesses are having a tougher time getting credit. The number of new unemployment claims filed last week hit 497,000, a seven-year high. Bernard Baumohl of The Economic Outlook Group.
BERNARD BAUMOHL: The data that keeps coming out simply confirms that this economy is continuing to deteriorate.
ZARROLI: The auto industry has been especially hard hit. Sales fell 27 percent in September. The drop in sales is being felt everywhere. Georgia-based Bill Heard Chevrolet was the country's biggest Chevy dealer with 15 dealerships in seven states. Heard called himself Mr. Big Volume and boasted that no customer was ever turned down for bad credit.
(SOUNDBITE OF BILL HEARD CHEVROLET AD)
SCHULTZE: Now, for New Year's Day only at Bill Heard Chevrolet Union City, here's your chance to buy a huge variety of used cars. You pay $27 down then make the payments posted right on the windshield. Some are just $89 a month.
ZARROLI: Last week, Mr. Big Volume filed for bankruptcy, shut down, and laid off 2,700 people. As the economy weakens, businesses of all sizes are seeing revenues falling, credit get tighter. Stuart Hoffman is chief economist at PNC Financial Services which released a survey of nearly 600 small-business owners today.
STUART HOFFMAN: This is a normally optimistic lot of entrepreneurs. They are pessimistic about the outlook, not only for the U.S. economy, but even their own businesses over the next six months.
ZARROLI: Hoffman believes that the $700 billion bailout plan will help ease conditions for banks and persuade them to begin lending again. Bernard Baumohl agrees, but he also worries about the impact of the bailout together with the rescue of AIG and Bear Stearns on the federal deficit. He says the government is going to have to borrow a lot of money in the years to come.
BAUMOHL: Now we're approaching a time when we are going to be borrowing more than ever before in the history of this country. We're going to need to borrow more from foreigners just at a time when foreign enthusiasm for purchasing U.S. Treasury debt is waning.
ZARROLI: He says if the government has trouble finding enough buyers, interest rates will have to rise. That would make it more expensive for businesses and consumers to borrow money, which would only crimp an economic recovery. The bailout may be the best hope right now of getting the U.S. economy out of the doldrums, but in the process it will also exact a toll. Jim Zarroli, NPR News, New York.
Correction Oct. 2, 2008
Some versions of this story incorrectly said Bill Heard Chevrolet was "Atlanta-based." It is actually based in Columbus, Ga.