An Ailing Economy

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Despite the surprise drop in interest rates this week, all the optimism of Wednesday was gone this weekend. The U.S. economy is sick, and the U.S. Federal Reserve, led by Chairman Alan Greenspan, knows it, CBS News Correspondent Wyatt Andrews reports.

"I think what happened is, in the last several weeks, he's become quite concerned about the health of the economy," said Alan Blinder, an economist.

So seems President-elect George W. Bush. "The warning signs are real," he intoned ominously.

Fears were increased by OPEC's announcement Saturday that it would cut oil production by as many as 2 million barrels a day, a move certain to drive up oil, gas and natural gas prices.

The fear of recession also gave a political boost this week to the president-elect's plan for a tax cut, perhaps even one this year. Mr. Bush and many business leaders are pushing the idea that interest rate cuts alone cannot cure the patient, especially since all of the fixes proposed will take at least six months to work.

Good Times, Bad Times
Unemployment rate at key points in American economic history:

  • Current
    2000 … 4 percent
  • Great Depression
    1934 … 21.7 percent
  • WWII Boom
    1944 … 1.2 percent
  • 50s recession
    1958 … 6.8 percent
  • Vietnam War boom
    1968 … 3.6 percent
  • 70s stagflation
    1976 … 7.7 percent
  • 80s recession
    1982 … 9.7 percent
  • 80s boom
    1989 … 5.3 percent
  • Nineties recession
    1992 … 7.5 percent

    (Source: Infoplease)

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    "Besides that, you need to put money directly into people's pockets, including small-business pockets, so a fairly broad-based and fairly large tax cut is going to be essential to be sure we stay on a nice three to 3½ percent (economic) growth path," said Jerry Jasnowski if the National Association of Manufacturers.

    Now the question is whether the president-elect and the Fed chairman in conflict. Greenspan has always made clear a tax cut is not his first choice, and because of that, some economists believe the Fed acted this week not just to reverse the slide, but to render the tax cut unnecessary.

    "Greenspan's move ws partly to preempt the surge for the psychology for 'We need a tax cut, we need a tax cut,' and partly it was to signal that 'Hey, we at the Fed can act a lot faster,' " said Clyde Prestowitz of the Economic Security Institute.

    There was some good news this week. A government report released Friday showing that the nation's unemployment rate held steady in December was a welcome bit of good news for America's uncertain economy, but a slight decrease in the average U.S. work week continued to hint at a slowdown.

    The 4 percent unemployment rate was better than many analysts had been expecting, given a rash of stories in recent weeks about thousands of job cuts at some of nation's biggest companies that reflected efforts to cope with a rapidly slowing economy.

    "This report doesn't indicate that things are as bleak as some are saying. The fundamentals of this economy are very strong," said Labor Secretary Alexis Herman.

    But, reports CBS News Business Correspondent Anthony Mason, the Labor Department figures also showed that the average work week shrunk last month from 34.3 hours to 34.1 hours.

    "That has the same sort of impact on the economy as an additional loss of about 700,000 jobs," said Lehman Brothers economist Stephen Slyfer. "What it means is that people are working fewer hours, which means they are producing fewer goods, which means that that the economy must be a lot weaker."

    The 12-minute loss was due to decreases in the average factory workweek and overtime hours.

    As the new numbers came, so did word of more layoffs. Internet retailer eToys said it will fire 700 of its 1,000 employees and Bausch & Lomb, the world's largest eye-care company, will slash 800 jobs.

    Despite that slowdown, the unemployment rate for all of 2000 averaged 4 percent. That was the best showing since a 3.5 percent jobless rate in 1969. The 1999 rate averaged 4.2 percent.

    The unemployment rate dropped to a 30-year low of 3.9 percent during three months of 2000. Economists are forecasting jobless rate could rise to 5 percent by the end of 2001.

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