Global economy coming out of 'synchronized sinking,' says S&P economist

The 71st Outlook 2010 Executive Conference opened Oct. 15 at the Capital Hilton, Washington, D.C. Presented by McGraw Hill Construction, New York, the event will continue through today [Oct. 16].

Tucker Carlson, contributor, Fox News, and senior fellow, The Cato Institute, Washington, D.C., delivered the keynote address during lunch.

“Washington is one of those places that’s in a perpetual state of justifying itself,” Carlson said. “Not this year. This year, Washington does matter because there is a new president who’s popular, talented and wildly eloquent," he said. "And, there’s more legislation being cooked up and put through the system than ever in history.”

David Wyss, chief economist, Standard & Poor's, made a presentation on The Economic Outlook.

“This was the worst recession since the 1930s,” Wyss said. “[However,] there are clear signs that bad things have stopped happening. Housing is stabilizing. Consumers are starting to spend some money. And the rest of the world’s turning around. It’s going to be a slow [crawl], but at least we’re [crawling]. We’re not out of the woods yet.”

The housing market was at the center of the recession, Wyss said. “The housing market was grossly over-valued. We built too many houses. Housing prices were up 75 percent in the U.S. between 1997 and 2005,” he said. “It was worse in Britain. Japan was an exception because they had their housing bubble 10 years ago.” Japan’s housing prices were up 30 percent more than in the U.S.

The U.S. financial system blew up, Wyss said, and “we’ve already spent $2.5 trillion to fix the system, and we’ll end up spending 11 percent of the U.S. GDP. Japan spent 9 percent of its GDP to fix its economy.”

“We’ve lost 7.2 million jobs since December of 2007; 150,000 retail stores have shut down since the recession began; and we’re down 20 percent this year in terms of construction activities,” Wyss said.

It’s been a “synchronized sinking” around the world, Wyss said. “We all joined hands and jumped off the cliff together. But we’re starting to resurface together.” China and India were the best performers in this recession, he said. The Chinese banks were already bankrupt, so the recession didn’t touch them. China put in a fiscal policy--concentrated on jobs and infrastructure--that cost 13 percent of its GDP. “They’re looking at 8.5 percent growth this year, from down 11 percent last year.”

There was synchronized sinking in the stock market, too, Wyss said. On March 9, the market started turning around. “The U.S. market is up 56 percent since March 9. Latin America was the worst performing market during the recession, and now it’s the best performing market. Australia was the best performing market during the recession, and is now the worst performing since March 9.”

The economy’s beginning to recover, Wyss reiterated. “It’s going to be a slow recovery. Unemployment lags the economy by six months, so it’ll go back down in the middle of next year, maybe down to 10.5 percent. We’ll have 9 percent unemployment rate to 2012. Consumer spending is picking up, retail sales are picking up, housing sales are turning around, slowly, gradually.”

Consumersare the main reason the turnaround will be slow, Wyss said. “We started this recession with a 1.7 percent savings rate. People are more cautious about borrowing and spending now. Without the consumer taking the lead, the economy will have a slow turnaround rate.”

Wyss’ presentation was followed by three panel discussions: The Credit Market; Stimulus at Work: Regional Case Studies; and Owners Panel: Plans & Progress.