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U.S. in recession, Bennett says

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WASHINGTON — Sen. Bob Bennett, R-Utah, considered one of the top economic gurus in Congress, says that Monday's stock market plunge was no surprise, but it probably shows America is now truly in a recession that he says likely will be shallow but a bit longer than normal.

"Overall, I agree with the voices of calm. We'll come out of this, probably by the middle of next year," he said. "I don't see us on the precipice of any major collapse."

Bennett said that after the Dow Jones industrial average plunged a record 684.81 points Monday as markets reopened after last week's terrorist attacks. While that was the largest single-day point drop ever, the 7 percent drop in overall value was far less that the 22 percent drop of the 1987 stock market crash.

Bennett, ranking Republican senator on the Joint Economic Committee and member of the Senate Banking Committee, is viewed as among the few in Congress who best understand both the details and big picture of U.S. economic policy.

He said after the market plunge Monday: "A sell-off today was predictable, particularly led by the airline stocks. There's almost no way you can put a rosy spin on what the airlines are facing now (after the terrorist attacks): decreasing traffic and increased costs. So it was expected they would lead a decline."

Airline stocks continued the plunge despite President Bush talking about a government aid package to buoy them.

"The thing to watch is what happens in the next two to three days," Bennett said. "If the rest of the market and the bargain hunters say, 'OK, we've had the emotional sell-off and now we can fill our portfolio with lower prices,' the market will be back up. That's what happened back in 1987.

"If they (serious long-term investors) think the emotional sell-off will continue to drive prices lower, they may hold off on buying. But soon, these bargains will start to look awfully attractive, and the buying will begin."

With the plunge and effects of the terrorist attack, Bennett said, "I think we are statistically in a recession now." A recession is defined as two quarters with negative growth.

However, he said, "My own sense is that this recession will be relatively shallow in historic terms, but rather long-lived. In other words, it will not be as deep as most recessions but will last longer."

"Fundamentals of the economy remain the same," he said. "Manufacturing is weak. Exports are weak. Housing is strong. The big question mark is consumer spending.

"I don't think the stock market will have much to do with consumer spending. I hope that the Fed's cut (of a half-point in its prime lending rate on Monday) will buoy confidence once the emotional selling is over."

That is why he says the recession should be shallow. "Again, the housing numbers should stay strong because of the rate cut compensating for the recession in the manufacturing and agriculture sectors."

E-mail: lee@desnews.com