Others, including Treasury Secretary Paul O'Neill, are more optimistic. O'Neill said yesterday that he expects the economy to recover early next year, citing an increase in retail sales this year on the Friday after Thanksgiving, the biggest shopping day of the year.
"The numbers that I saw this morning indicated holiday sales on Friday were four percent over a year ago," O'Neill told ABC's This Week. "That doesn't sound to me like a weak consumer."
But others note that the stronger-than-expected retail sales came at a cost to stores. Many retailers are offering deeper discounts this year to entice consumers to come out and spend, and that discounting will likely eat into profits.
"As a result, firms' abilities to expand, to carry inventories and to put people back to work is not going to be what it would have been if the firms had been able to make these sales at normal prices," notes Harvard University economics professor Benjamin Friedman.
Boost for Stimulus
Sung Won Sohn, chief economist at Wells Fargo Bank says he believes the economy has already started rebounding since September. He has revised his fourth quarter GDP estimate upward to -1 percent from -3 percent he originally forecasted, based on strong consumer spending. Though that would technically mean a recession in some economists' definition of the term, Sohn says he agrees with the more broad-based criterion of a recession used by the NBER.
Two quarters of GDP decline is "a rule of thumb which may or may not work," says Sohn. "In 1980, we had a recession, but the economy contracted only one quarter."
One thing is for certain — this latest spurt of bad news for the economy will increase pressure on congress to pass a stimulus package. President Bush has again called on the Senate to agree with the House on billions of dollars for workers who lost their jobs and for tax breaks by Christmas.
"I am obviously aware that our economy is slow and we will do everything we can to enhance recovery," President Bush said today during a White House ceremony welcoming home the two U.S. aid workers that were held captive in Afganistan.