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September 20, 2001

Short-Term Economy Shaky

Sure, the economy will improve in the long term. But, in the short-to-medium term, the US is facing a recession and maybe even a depression.

The latest housing numbers show that new home starts dropped 6.9% in August -- adding to the evidence that consumer spending was buckling even before September 11th. And afterwards? Chairman Greenspan confirmed that consumer spending cratered in the days following the terrorist attacks on the US.

Consumer spending will undoubtedly continue to plunge as the unemployment picture worsens with every passing day. The airline industry has already announced layoffs for tens of thousands of workers. We expect more axes to fall -- and not just in the airline industry -- as the economy slows even further.

The Dow is more than 1,200 points below its level at the beginning of this week. The Nasdaq has dropped 13% since trading resumed on Monday, and the S&P; 500 Index closed below 1,000 for the first time since October 1998. Back then, the stock market was on its way up. Now, these indexes still have much further to fall before the economy finds solid ground and stocks can begin to recover.


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