By Larry Jones
August 5, 2002

Wayne Ayers, chief economist for Fleet Bank in Boston, told mayors attending the summer leadership meeting on July 26 that the nation's economy will continue to experience gradual growth over the next few years. "We just went through a short recession and the good news is the recession is over. The bad news is no one believes me," he said jokingly.

He told mayors not to be overly discouraged by the recent corporate scandals and their adverse effect on the stock market. Ayres pointed out that falling stock prices are due largely to declining consumer confidence in the wake of publicity about an accounting scandal at some of the nation's largest corporations which has allowed them to shield an accurate picture of their profits and losses from investors. He explained that as long as these corporate scandals linger, it will continue to have an adverse impact on consumer confidence and the market.

Despite these problems, Ayers said there are other positive signs that imply that the nation's economy will continue to experience gradual growth over the next few years. While some companies, particularly those in the telecommunications industry, have been hard hit and continue to struggle as the economy bounces back from the recession, Ayres told mayors the so called "blue chip"companies are in good shape. Although he doesn't expect the economy to make a roaring come back soon, he said economic growth could reach the 4 percent to 4-1/2 percent range in the next two and a half years.

Ayres told mayors the federal government has done about all it can do to restore investor confidence and spur economic growth. To make his cases, he cited the recent congressional approval of corporate accounting reform legislation, passage of a ten-year tax cut package, increased federal spending and the Federal Reserve Board's actions to keep interest rates down. Although the federal government has returned to deficit spending, Ayres said increased federal spending is putting money back into the economy and contributing to economic growth. He also pointed out that the Bush Administration is projecting the deficit will end and the federal government will return to a budget surplus within the next five years.

Ayres credits housing and auto sales as two key sectors that are helping to keep the economy growing, pointing out that 68 percent of American households own their own homes. Housing and auto sales are expected to continue to fuel economic growth as interest rates and inflation remain exceptionally low. He predicts it will be at least six months before the Federal Reserve Board takes any action to raise interest rates.

American Corporations are also expected to give the economy a boost when they begin buying to replenish their inventories. Ayers explained that during the last year corporations experienced the largest inventory liquidation in history, which means they must soon begin reordering the goods and supplies they need to conduct business.