U.S. needs good news to combat recession

Whipped by the winds of approaching war and recession, Americans prepare for more bad economic news this week as the nation's leaders try to cheer them up and get them back into the stores and back into the stock market.

All eyes are on Wall Street, where blue-chip stocks took more than a 1,300-point pounding in a week of carnage for once-bulging portfolios.

There is faint hope that the bottom might be near after the rapid decline, but few analysts predict a major rally anytime soon. Neither is hope abundant that the economy would bounce back in the foreseeable future, and perhaps not until mid-2002.

New economic indicators this week, including a consumer confidence report by the Conference Board on Tuesday, are expected to bolster economists' view that a recession is at hand.

The gloom that has settled over the economy since the Sept. 11 terrorist attacks is a key factor in this outlook. Some analysts believe that until the country sees some victories in President Bush's war on terrorism, stock prices will remain depressed and the economy soft.

"Before the market is going to stage any kind of a major rally, we have to have some of the questions about terrorism cleared up," said Paul Kasriel, economist at Northern Trust Co. in Chicago.

"How safe are we are at home here? Are we going to win the campaign against Afghanistan? We need a success," Kasriel said.

Consumer retrenchment goes hand in hand with worries of more terrorist attacks. Aware of the fragile state of consumer confidence, Bush, members of his Cabinet and congressional leaders have joined in a campaign to encourage Americans to return to a more normal economic life and start spending.

Bush did so in his radio message Saturday. On Sunday morning television talk shows, there was a chorus of cheerleading: "Go buy that car and have a good dinner," said Senate Democratic Leader Tom Daschle (D-S.D.). "Go out and buy new clothing for school."

That would help the country more than anything, he said.

Secretary of State Colin Powell also appealed to the country to return to a semblance of economic normalcy and not wallow in pessimism.

"Let's remember what we are made of," he said. "We are made of strong stuff."

But economists said they worry that the layoffs announced in the airline industry last week could spread to other industries, including hospitality and retailing, and this could turn into a major depressant.

Jobless don't spend

When people are out of work, they aren't responsive to patriotic appeals to spend their money, said Sung Won Sohn, a Wells Fargo Bank economist.

Sohn said fear over possible terrorist attacks and uncertainty over the president's campaign against terrorism are behind the deeper downturn.

Buying a new car is a "fun event," he said, "and when you feel pain in your heart, you don't feel like celebrating by buying a new car. . . . People are postponing their purchases."

Kathleen Stephansen, director of global economics at Credit Suisse First Boston, said consumers are under siege, with joblessness rising and stock market holdings declining.

"Income growth will slow," she predicts, and a recession will grip the economy until the middle of next year.