By Marlene C. Colman

Are you still putting your brokerage and 401(k) statements in a desk drawer, unopened? Are you thinking about the financial news, and wondering when the economy is going to turn around? We all do. Whether to better advise our clients or to better manage our economic future, we are all very interested in what is happening with the economy. The New York State Society of CPAs’ Cooperation with Bankers and Other Credit Grantors Committee recently shed some light on the state of the economy by inviting a senior regional economist with JPMorgan Chase Bank to speak.

During a presentation held on Nov. 21 at the Yale Club in Manhattan, the economist, Marc M. Goloven, provided the attendees with a brief history that helped explain the current economic environment.

We still remember the 1990s, years of growth evidenced by successes in Silicon Valley and on Wall Street. High-tech companies expanded at a 30 to 40 percent growth rate in 1999 alone. But the boom was not to last.

The 2001 recession took root in the manufacturing sector, with high-technology equipment manufacturers’ growth rate contracting by 16 percent. Equity markets turned downward and New York City suffered the Sept. 11 terrorist attacks. The tenth postwar recession in the U.S. was widely established.

However, Goloven pointed to a few important facts that led us to a subdued recovery. Within six weeks of the attacks, consumers were buying again. Car sales rose at a historic rate. Existing home sales, which account for 85 percent of the real estate market, ran at a significant high. Businesses needed to respond to this demand, and growth in 2002 averaged 3.25 percent. This rate is not too shabby when compared to the average economic growth of 4.5 percent that occurred from 1996 to 2000.

Goloven further provided some helpful points to better understand the nature of the subdued recovery we are in and why the financial news is still so negative. The recovery is jobless; the unemployment rate is at 5.7 percent. Why? We are working harder and smarter: the rate of productivity growth was at 4 percent in the fourth quarter of 2002. This is promising news in the long term, but current economic growth is being comfortably sustained without job creation. When economic growth does finally outpace productivity gains, jobs will be created, Goloven said.

Though we appear to be in a profitless recovery in which down-and-out S&P 500 companies in financial services, telecom and media are dominating the news, all 12,000 publicly traded companies are posting after-tax profits increases of 30 percent comparing the third quarters of 2001 and 2002. Since these disinflationary times are preventing companies from increasing prices, they are decreasing costs and applying some creativity to their operations. This is an important strength that also bodes well for the future, Goloven added.

The Cooperation with Bankers and Other Credit Grantors Committeee would like to thank Goloven, who directs JPMorgan’s regional research efforts on economic and financial developments in New York, New Jersey and Connecticut, for his participation and helpful insight.