Is the Economy Really That Weak? Soaring oil prices, low dollar, tumbling stock prices, but by some measures the economy remains strong. We examine the long-term outlook as well as holiday sales predictions?
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Is the Economy Really That Weak?

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Is the Economy Really That Weak?

Is the Economy Really That Weak?

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ALEX CHADWICK, host:

From the studios of NPR West, this is DAY TO DAY. I'm Alex Chadwick.

MADELEINE BRAND, host:

I'm Madeleine Brand.

It's been a rough few days for the stock market - the Dow, the NASDAQ. They dropped sharply yesterday on worries about high oil prices - actually record-high oil prices - a weakening dollar, and more mortgage-related right-offs by big banks.

CHADWICK: And Federal Reserve chairman Ben Bernanke didn't helped matters when he was publicly ringing his hands over slackening economic growth and rising prices.

BRAND: But it's not all bad out there.

CHADWICK: No. Joblessness way down this week. Productivity way up. Those are good figures.

BRAND: And today, we heard that the weak dollar has actually brought us some good news. The trade deficit has unexpectedly narrowed. And that's because American goods are now cheaper abroad than foreign goods.

One of the beneficiaries of this is Rob Potash from Stoughton, Massachusetts. He's an exporter. Welcome to the program.

Mr. ROB POTASH (Vice President, CSMI Solutions): Thank you.

BRAD: You export goods. What do you export and to whom?

Mr. POTASH: We export a product called the HUMAC NORM. It's used in physical therapy and research to measure joint performance. So if you have a deficit between your two knees, it would find that deficit, measure it, and allow you to track it.

BRAND: Okay. So you are doing pretty well these days, I guess, with the falling dollar?

Mr. POTASH: International sales are up. They've just matched domestic sales.

BRAND: So you're pretty excited about that?

Mr. POTASH: Extremely excited about that. And we're also three days away from going to Germany for Medico(ph), which is the world's largest medical show in Dusseldorf.

BRAND: And are you reevaluating or rejiggering any of your business practices in light of this new economic reality?

Mr. POTASH: Yes. I used to be responsible for domestic and international. We've now hired somebody to watch domestic. And I'm concentrating a 100 percent on international.

BRAND: So do you see new markets for your products now?

Mr. POTASH: Absolutely. We just opened up at the Middle East and Germany, which had been slow for us, is taking off as, as the U.K., and we anticipate that to continue.

BRAND: And you must be in touch with a lot of other businesses that are also exporting. Are they experiencing similar benefits from the falling dollar?

Mr. POTASH: Yeah. We really see three benefits. One is your product is more attractive internationally, but also we compete in markets such as Mexico with other European products. Their products are simply priced out of the market. So we have appeal there. And thirdly, companies - if a company was in acquisition mode, the U.S. ones are available at a discount.

BRAND: I guess the downside, though, when you're in Germany next week is that you're going to be paying a lot more for your hotel and your meal.

Mr. POTASH: My expense account doesn't go as far as it used to go. I recently got back from a trip to Iberia and was shocked at what it cost to travel internationally.

BRAND: All right. Rob Potash, vice president of CSMI Solutions, thanks a lot.

Mr. POTASH: Thanks for including us.

BRAD: Of course not all Americans are enjoying good times right now.

Ernie Gonnelly is a mortgage broker from Cape Coral, Florida.

Welcome to the program.

Mr. ERNIE GONNELLY (Mortgage Broker): Hi. Thank you.

BRAND: Well, how bad is it out there for your clients?

Mr. GONNELLY: Oh, it's very bad. You know, the economy is just in turmoil over here. We are probably number two or three in the nation as far as growth goes for development down in Cape Coral here. We're in Southwest Florida. And there's just too many investors, too many speculators. And then, you know, they just got themselves into just a hot, hot market and now they can't, you know, sell what they have, and there's so many for sale signs, so many foreclosures.

And this affects everybody because it's not just the builders that aren't selling, it's not the realtors that aren't making money, it's not the mortgage brokers that can't get the deals done. You know, it hurts the guy that's been working for that builder for the last 10 years that might have been just doing punch-out on a regular salary.

BRAND: Mm-hmm.

Mr. GONNELLY: And so now we've got all these people that can't afford things because they got laid off on their jobs. A lot of these big commercial buildings that they built here like Target, you know, the malls and the strip malls and things like that; you go into them now and they're empty.

BRAND: Hmm.

Mr. GONNELLY: And it's affecting everybody. It really is.

BRAND: Yeah. And what about people who want to buy a house? Is it a lot harder now?

Mr. GONNELLY: Oh, yeah. I mean, I could tell you horror stories. I'm in the process right now of just - I feel like I'm - it's actually been degrading as a human being to be in the business I am, because my clients are my life and I put myself in their shoes.

And you know, when you talk about the unethical and the ethical mortgage broker, I'm definitely the ethical. I'm looking to eat, but not at the same time take advantage of what a lot of those other people did. And they're blaming the whole industry on mortgage brokers and this and that. But you know, that's another story, I guess.

But as far as these people go, I mean, the lenders just don't want to lend. And what you're going to realize is, you'd usually be able to get a deal done in two, maybe three weeks. You know, I've got deals I've been working on for four months. And it's not like I'm a first timer in this business. I've been doing it for, you know, about seven and a half years.

So you know, I had a full staff of nine people and two processors and secretary and assistant. And you know, now it's just down to me and a couple of loan officers that I, you know, are commissioned. But it's just, you know, it is what it is. Hopefully we'll weed out a lot of that competition and at the same time we'll try to help our clients as best as we can. But you know, I can't even explain to you the hard times that we've been going through on our end with the clients.

BRAND: Ernie Gonnelly, a mortgage broker in Cape Coral, Florida, thank you and good luck out there.

Mr. GONNELLY: Thank you very much. Good luck.

BRAND: So all that means on a national level, of course, less disposable income, less money to spend at the mall. Stores like Macy's and the Gap are reporting declines in sales. The nation's biggest chains say overall they have their weakest October in 12 years.

Retail analyst Howard Davidowitz joins us now from New York.

Howard, people are staying away from the malls because they don't want to spend money on the gas driving there?

Mr. HOWARD DAVIDOWITZ (Retail Analyst): I think what you got to look at is the consumer. He's under water. The consumer has record debt. The consumer has spent more than they've made for five years, and they've made that up through $3 trillion in home refinancings.

Now we've taken away the three trillion. So the consumers are sitting there spending more than they've made, record debt. We've had negative savings for 24 straight months - the longest period since the Great Depression. We've got a negative wealth from a housing - 69 percent of Americans own homes. We've got a housing crisis. We've got a slowdown in credit card payments. You put all this together - guess what? The American consumers is under water. We have a negative wealth effect and they're shopping less, and that makes sense.

BRAND: So which stores did the worst?

Mr. DAVIDOWITZ: If you look at the department stores - Bon-Ton down; Dillard's down; Macy's down; Gottschalks down; Penney's down; Kohl's down. It was very ugly in the department stores. Sears down. So the department store sector was the worst sector.

The specialty store sector was not good either, but better than the department store sector. In the specialty store sector, Chicco's down; Abercrombie and Fitch down; American Eagle down; Ann Taylor down; Limited down; Cache down; Kato(ph) down; Charming down: Gap down; Hot Topic down; Mother's Work down; Pacific Sunwear down; Stade(ph) Store down; Talbot's down; Westfield down.

So if you look at the specialty store sector, it's also ugly, but the department stores were worst.

In the discount sector, you have mixed results. Wal-Mart was poor, up four-tenths; that's 10 percent of American retail sales. Target at four up, did fair. And Costco did very, very well. Mixed picture in discounting, terrible in department stores, and poor in specialty stores.

BRAND: So what is your prediction? More bloodletting as the holiday season progresses?

Mr. DAVIDOWITZ: More bloodletting. We've got a very weak consumer. We're going to have no growth in the fourth quarter in the economy. The economy is under water. You see the dollar utterly in collapse. The consumer just can't borrow anymore. And that means a mess in sales. The country is over-leveraged. George Bush has borrowed, borrowed more money than all the prior American presidents put together, and the American consumer is like America. They just keep borrowing to spend. Eventually you can't borrow anymore.

BRAND: Howard Davidowitz, retail analyst, thank you very much.

Mr. DAVIDOWITZ: Thanks for inviting me.

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