In recent months, virtually every financial news source as well as other media outlets have been dedicated to reporting the U.S. economic slowdown, which until the end of the summer seemed unimaginable. By now, however, the recent rash of analyst downgrades, layoff announcements and quarterly losses seems like the norm.
Of late, even the simple task of reading the stock pages is often a depressing one, as once sky-high prices have come down to earth.
Concurrent with the slowdown has been the demise of a large number of glamorous Internet companies. These high-tech companies, which for the past couple years had driven much of the NASDAQ Index's explosive growth, also were a primary reason for its loss of approximately 50 percent in the last nine months.
Additionally, announcements of substantial layoffs at industry-leading, technology-centered companies such as Amazon.com, Xerox and General Electric have bolstered critics' claims that a recession is on the horizon.
Despite the surge of negative reports on the economy, many of the University's own economic gurus see light at the end of the economic tunnel. Though Professors Alan Blinder, Paul Krugman and Elizabeth Bogan — whose words are taken as economic law by many industry experts — do not foresee an economy at equilibrium during the coming months, they nevertheless offer predictions that are not as dire as those many others have given.
Blinder rates the probability of recession — using the conventional media definition of a recession as being "two consecutive terms of negative gross domestic product growth" — as being about one in three.
As for a more broad view of the economy, Blinder says he agrees with "the general consensus, which predicts that the first half of the year will be weak, with better growth in the second half."
Krugman, however, was somewhat more hesitant when asked for a short term economic prediction. He said, "Short term economic forecasting is a black art; no one does it well, and it is often done by looking very intensely at small factors."
Krugman did explain, however, the background to the situation the U.S. is currently experiencing. "People were feeling giddy about spending money last year, and then reality hit, and individuals and companies have gotten suddenly more cautious," he said.
Krugman added that he thinks the chances of a more problematic recession — something similar to what happened in Japan in the early 1990s — as being far lower than Blinder's estimate, placing it at about one in 20.
Professor Bogan, on the other hand, says that though Americans may not be specifically aware of the entire American economic situation, she said she believes the country is currently in a recession. "It is pretty clear that a real slowdown is occurring," Bogan said, though she quickly added, "We will not have a deep recession because we don't have a problem with inflationary expectations; it will not be deep or long."
Blinder said the job market, as a result of the slowdown, will likely be weaker than in past years, a fact that may not bode well for University students.
"It certainly looks like the job market for the Class of 2001 will be significantly weaker than for the three [classes] before. Those were banner years for new college graduates entering the job market." He added, however, "I don't think 2001 will be disastrous by any stretch of imagination, just weak relative to what we have seen recently."
Bogan echoed Blinder's sentiments, predicting the market will take a slight hit. "We have never before seen such a strong market for seniors as we have in recent years. I do think, though, that it will get a little bit tighter," Bogan said.
Krugman, however, said he sees little reason for concern. "As far as Princeton graduates are concerned, even this class will see little effect, and probably none of the later classes will feel any negative effects," he predicted.
Though all were quick to point out that stock market projections are even more difficult to make than for the economy in general, they all said they feel at least fairly confident about Wall Street's future.
Blinder said he is "cautiously optimistic" about the next several months in the stock market, largely because it seems likely that the Fed will again cut interest rates, something that is usually beneficial for the market.
Krugman concluded, "A year ago, you didn't have to be brilliant to say the stock market was way overvalued, but you can't say that anymore, which I guess is a good thing."
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