Hiding in the shadows of corporate balance sheets is another potential drag on the economy: the crippling of corporate pension funds by the stock market's fall.
"The last time we had such a major dip in the stock market was 1973 and 1974," said Ethan Kra, the chief retirement actuary at William M. Mercer. In the 1970s, Kra said, holding half a portfolio in stocks was considered aggressive. "Today there are pension funds that are 70, 80, 90 percent equities," he said.
The losses are severe. "We're talking tens and tens of billions in the economy," said Kra. "It's hitting companies of all sizes."
Disappointing returns spell danger for companies whose pension funds pay a fixed benefit to retirees. The companies will have to top up their pension funds using regular earnings.
Kra predicted that these unanticipated contributions would continue for years. That means the worst pension expenses might not surface until late in 2003.
Will these hindrances keep the economy from recovering on time? According to the National Bureau of Economic Research, the unofficial arbiter of the business cycle, an average recession lasts about 11 months. On that schedule, the recession could end sometime in February. Yet this has been no average recession.
Romer pointed out that unlike most recent recessions, this one had not resulted from the Fed's efforts to head off inflation. "You would expect a different set of patterns in a recession that's got a different cause," he said.
"We know this is a very unusual recession," Martin agreed. Since forecasters did a poor job of predicting the recession's onset, he said, they should not necessarily be trusted to predict the timing or strength of a recovery.
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