We Ask: When Will the Pain Go Away?

Good news: the economy isn ' t structurally weaker
John Rowe, CEO of Exelon, a Chicago utility holding company

While I am moderately optimistic about a rebound during the second half of 2008, until we see sustained job creation, recession will be a risk. We have had some success in managing the credit crisis; nevertheless, it has stressed our financial institutions. The federal government has taken action to support the U.S. economy, but the tools that worked well in the past may not be as effective today. Still, these things are cyclical, and I do not believe that the economy is structurally weaker than before. For example, the United States has faced high energy prices before; the response will lead to a more sustainable and secure economy in the long run.

Emerging economies—especially China—are still growing robustly, and they are keeping key costs of the electricity business high. The price of coal produced in the Eastern U.S. has more than doubled since last fall, largely because of higher international demand. In 2006, China alone added more than 90 gigawatts of new coal generation to its grid—almost the equivalent of all the energy produced by U.S. nuclear plants. This international demand for new electricity is rapidly pushing up the cost of building the new power plants we so desperately need here.

Trade imbalance improves
Jim O'Neill, chief economist Goldman Sachs

During the second and third quarter of this year, there should be some benefit from the fiscal stimulus that was introduced a few weeks ago. If there is not, that will be troubling Of course, there is a strong case that once the stimulus fades the consumer will start to weaken again anyhow. Two things will be crucial. Oil price increases are finally starting to discourage oil consumption. If they continue to rise, then the U.S. consumer will face even more headwinds. On the other hand, if they ease—which is what I suspect will happen—this could bring some very welcome relief. The second thing, which hasn't received enough attention, is the impressive improvement in the trade balance. That is likely to continue and is giving the economy more support than many seem to realize. Moreover, the signs still look good for exports. The May Institute for Supply Management report showed export prospects at a 3-year high.

It seems to be quite clear that the world no longer catches influenza when the United States catches a cold. This is, of course, because of the emergence of the BRICs—Brazil, Russia, India and China. According to our calculations, these four economies now make up over 15 percent of global GDP in current American dollars (the United States accounts for 30 percent of global gross domestic product). So far, this decade, they have contributed one third of all the global demand. In the 1990's, they would have been much less relevant. Using each country's retail sales data, and adjusting for its share of global gross domestic product in 2007 the BRIC consumer contributed around 1 percent to global gross domestic product, about double the U.S. contribution. Most recently, China reported for April that retail sales grew by 22 percent from last year, the highest jump for over 10 years (adjusted for inflation, we think that the increase was about 13.6 percent). This is dramatically more sales growththan we've had in the United States, and suggests that if there were ever a good time for American manufacturers to be challenged, then maybe this is "it": the Chinese consumer is buying. It sometimes seems to me that the United States is going through a "perfect" adjustment of its well known imbalances. People should not lose sight of this. U.S. exporters clearly haven't!

Three years ago, we applied our 2050 BRIC growth "dream" projections to energy markets, and concluded that energy demand would be very intense between 2005 and around 2017-2018. Given the lack of investment in producible oil, this made us think that oil prices were highly likely to go through a sustained bull period. However, recent evidence suggests that global oil demand has slowed quite a lot, and not just in the United States. It might well be that energy efficiency is improving more than many realize. If that is true,this is, course, one of the good aspects of higher prices. In any case, I am far from sure thatoil will hit $200 a barrel.As we've seen, even at $135 the political backlash has been rising, and now there are growing efforts by policymakers to at least get rid of speculation. The desire to keep oil prices downis partly what's been behind the fresh "strong Dollar" comments coming from the Treasury and the Federal Reserve early this month. If those political efforts fail, and supply disruptions cause oil prices to go to $200, I think the near term impact on the United States would be negative. Longer term, that may not be a bad thing, as it would be highly likely to boost energy efficiency and conservation.

America's economy closely tied to the world
Edward Gresser, economist, Public Policy Institute

There's been talk about the U.S. economy "decoupling" from the global one. Actually, the United States isn't on the verge of a divorce, or even close to a trial separation, from the rest of the world. We're just changing the terms of the marriage.