Source : The Business Times, March 14, 2008
More than half the execs in a survey say the economy is already in recession
(WASHINGTON) Jamie Dimon, chief executive officer of JPMorgan Chase & Co, said the US economy is now in a recession.
'I think we are in one,' Mr Dimon, head of the third-largest US bank, said at a dinner sponsored by the Economic Club of Washington on Wednesday.
The US economy is in a prolonged contraction that will not dissipate until next year, according to a survey of chief financial officers.
More than half of the executives surveyed said the world's biggest economy is already in a recession and eight out of 10 said one is likely by the end of this year, according to the first-quarter Duke University/CFO Magazine Business Outlook index.
The gauge was at the lowest level since its inception in June 2001, when the US was in an eight-month contraction.
'The news from CFOs is pretty grim,' John Graham, director of the survey and a finance professor at Duke, said in a statement. 'With overwhelming CFO pessimism, we expect weak capital spending and employment in 2008.'
A slowdown in consumer spending, credit restrictions, fallout from the deepening housing slump and high fuel prices were all cited as contributing to the decline in growth. Nine out of 10 company leaders said a recovery will not begin until next year, with a plurality forecasting a rebound late in 2009.
The results are based on responses from 475 US chief financial officers in a survey taken through March 7.
A third of the respondents said their businesses had been 'directly' affected by decreased availability of credit, having to pay 1.18 percentage point more on average for financing than in the last three months of 2007.
Three-quarters of the finance chiefs said the Federal Reserve's interest rate reductions that started in September have had no influence on their businesses.
'Clearly, the Fed needs to switch to plan B,' Campbell Harvey, a professor of international business at Duke and the survey's founding director, said in a statement.
Meanwhile, Mortimer Zuckerman, co-founder of Boston Properties, the largest US office real estate investment trust, was even more pessimistic. He sees no sign for recovery for the recessionary US economy.
'We are looking at the worst set of macroeconomic conditions since the Great Depression,' Mr Zuckerman said in an interview with Bloomberg Television. 'I don't know where the bottom is. The federal government's going to have to do a lot more to contain what I think is the potential of a perfect storm.'
'The most dangerous part in my judgment is what is going on in the housing world, where we're now running foreclosures at the rate of two million a year, where nine million homes, according to the government, just slightly under nine million homes, have either no equity in them or negative equity,' he said.
'That will go up to 15 million if housing prices continue to go down this year as they've done last year,' Mr Zuckerman added.
He said the Fed's move to lend, in return for mortgage debt, US$200 billion of Treasuries to the securities firms that trade directly with the central bank, was not enough. The Fed can't solve the problems of banks that aren't willing to make loans, falling home prices or a lack of confidence in the economy over the next year or two, he said.
Businesses, on average, planned to increase investment in new equipment and software by 3.3 per cent in the next 12 months, according to the Duke poll. In December, executives had planned to boost spending by 4.1 per cent.
Companies planned to control labour costs, the report showed. Respondents foresaw 'no significant' increase in payrolls, compared with December's projected 0.5 per cent gain in employment. -- Bloomberg
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