Tale of two recessions

Current downturn differs from slump in early '90s

By Eileen Alt Powell

Associated Press

NEW YORK -- When Sonja Heinrich was laid off from her job as a machine operator at Briggs &; Stratton Corp. in the spring of 2000, she figured it would be just a couple of months before she was called back to work. That hasn't happened yet.

"This time it looks really bleak," said Heinrich, who has endured a number of short-term layoffs in her 23 years with the suburban Milwaukee manufacturing company, including one in the 1990-91 recession.


The big problem this time, she said, is that "no one can tell you when things might turn around."

Economists say the current recession, which began last March, isn't expected to be as deep as the downturn a decade ago. At that time, the nation's unemployment rate rose to 7.8 percent, considerably above the 6.5 percent peak analysts are predicting this year.

But this time, the industrial sector has been especially hard hit, pulled down in part by what Deutsche Banc Alex. Brown economist Edward Yardeni calls "the tech wreck." The National Association of Manufacturers estimates more than 1.2 million manufacturing jobs have been lost so far, more than double the industrial job losses in the early 1990s.

Meanwhile, the hospitality and travel industries have been in a slump since the Sept. 11 terrorist attacks. But banking and home building, which suffered mightily in 1990-91, are holding up better this time.

'External shocks' hit hard

In both the last recession and the current downturn, rising interest rates helped induce a national economic slowdown, said Sung Won Sohn, chief economist at Wells Fargo &; Co. And there were "external shocks" -- Iraq's invasion of Kuwait in 1990 which destabilized oil markets and last year, the attacks on the World Trade Center and Pentagon.

"But last time, everything went down together," Sohn said. "This time, the sectors are taking turns starting with technology, autos, manufacturing, consumer goods."

Another difference is that there are still jobs to be had, he said. "In 1990, if you lost your job, it was very difficult to find a new one. This time, there are openings."


The 44-year-old Heinrich, for example, has been working at a fast-food restaurant and dipping into her savings while she waits to be called back to Briggs &; Stratton.

In Philadelphia, public relations specialist Gregg Feistman, 43, worked through the 1990-91 recession at a financial services company but lost his job at an online bank last October. Still, he's confident the Federal Reserve's aggressive rate cutting last year will boost the economy and his job prospects this year.

"I'm cautiously optimistic that I'll have something by February," Feistman said. "The rate cuts are starting to take effect. And hiring managers, who put everything on hold after Sept. 11, are starting to make spending decision again."

The availability of jobs and the Fed rate cuts have helped maintain consumer spending, which accounts for about two-thirds of the economy. While holiday retail sales were lackluster, the auto industry got a boost by offering low or no-interest financing.

A mixed bag

As in any recession, some sectors have fared better than others.

Banking and other financial services are in better shape now than during the last downturn, said economist Mark Vitner of Wachovia Securities.

"Back then, the banking system was in very bad shape," he said. Savings and loan associations had so many bad loans on their books that the federal government had to bail them out. Banks also faced mounting loan defaults and sharply reduced lending.


"This time, there's been some increase in problem loans, but not to the extent they would threaten solvency," Vitner said. "And credit has been available."

The availability of loans at low rates has been a boon to the housing industry, which traditionally has led the economy into recessions -- and led it back out.

Bruce Smith, a California developer who is president of the National Association of Home Builders, said that in past downturns, builders often suffered as inventories of unsold homes rose to levels that would take nearly 10 months to clear. This recession, the inventory will take just 4.5 months to clear.

"We've had aggressive monetary policy led by the Fed," Smith said. "The administration came through with tax cuts starting last year and there's a stimulus package pending (in Congress) for this year."

In addition, he said, housing had benefited from "extraordinary demographics" -- there's been greater household formation and higher immigration than anticipated, leading to persistent demand.

Manufacturing almost always gets hit in a recession, but this time it got hit sooner and could stay depressed longer, said David Huether, chief economist for the National Association of Manufacturers in Washington, D.C.

Industrial output has been falling since October 2000, undercut by high energy prices, high interest rates and the strong dollar, "which has weakened exports and severely constrained pricing ability," Huether said.

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