After Sept. 11 and the rapid economic slide that followed, everyone was talking about if things would turn around.
Publications in places from the United Kingdom to Southern California turned to Kenneth T. Mayland, president of Ohio-based ClearView Economics for answers.
The short answer is yes, Mayland told them. But, he added, the disastrous events in September have slowed recovery. What helped was the early response of business owners, the Federal Reserve and even the government before the attacks, which prevented an even deeper recession.
“In my 28 years of doing this, the actions taken have been the most potent list being brought to bear on the economy,” Mayland told nearly 200 real estate and construction professionals at Grubb & Ellis Co.’s 2002 Cleveland Commercial Real Estate Forecast. “Over the next year, those steps will gain some traction.”
In the meantime, Mayland says you should ignore these common myths about economic recovery.
- Myth: Consumer incomes must recover before consumer spending will recover. “That is wrong,” Mayland says. “It’s wrong historically, and it’s wrong statistically. The spending recovers before incomes do.”
- Myth: After 11 interest rate cuts, there is little to show. Monetary policy is no longer effective. Wrong, says Mayland. “The lag time is one year. We’re just starting to feel the impacts from the first cuts in January 2001, and there are a lot more rate cuts in the pipeline.”
- Myth: A rise in interest rates will snuff out a smoldering recovery.
“When the economy’s prospects improve, that means the returns on investments will improve,” Mayland says. “A rise in interest rates is a good sign that the economy is starting to cook.”
- Myth: Company performance must improve before stock prices can rise.
“That’s not true,” Mayland says. “Stock prices bottom out and rise before profits do.”
How to reach: ClearView Economics LLC, (216) 595-9931