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Segment# 1 Location Date 1/10/2008 Story Name BRACING FOR RECESSION RECESSION FEARS Notes LAKSHMAN ACHUTHAN, PROFESSOR KIT YARROW 18:30:53 Prepared by The Transcription Company, www.transcripts.net, (818) 848- 6500 Which takes sole responsibility for accuracy of transcription 18:30:53 CHARLES GIBSON (OC) Good evening. First, it was housing. Then, it was jobs. Now, still another sign of economic troubles, rattled consumers seemingly too scared to spend. 18:31:03 CHARLES GIBSON (VO) Retailers today reported dismal December sales, the worst holiday shopping season in five years. Macy's, JCPenney, the Gap, Target, all down. 18:31:13 CHARLES GIBSON (OC) Taking note of all this, Federal Reserve Chairman Ben Bernanke said today the Federal Reserve is not forecasting a recession, but will, he said, cut interest rates to prevent one. ABC's Betsy Stark is with me. And Betsy, you don't often hear the Fed chair promising interest rate cuts so publicly. 18:31:30 BETSY STARK, ABC NEWS (OC) Charlie, it is unusual for the Fed chairman to send such a clear signal. And what it tells us is that the Fed knows it may have to cut interest rates more aggressively, at least half a point at the next meeting, to help keep the country out of recession. While the Fed isn't forecasting a recession yet, plenty of other forecasters are, and it would hurt. GRAPHICS: BRACING FOR RECESSION 18:31:53 BETSY STARK (VO) No one's whispering about the R word anymore. Now, they just come right out and say it. GRAPHICS: RECESSION 18:31:58 ALAN GREENSPAN, FORMER FEDERAL RESERVE CHAIRMAN The probabilities of a recession have moved up. 18:32:00 SENATOR HILLARY CLINTON, DEMOCRAT Slipping toward a recession. 18:32:02 ECONOMIST, MALE Risks of recession... 18:32:04 SENATOR HARRY REID, SENATE MAJORITY LEADER America's looming recession. 18:32:05 MELISSA FRANCIS, CNBC REPORTER The US economy will slip into recession this year. 18:32:08 BETSY STARK (VO) The traditional definition of recession? 18:32:11 LAKSHMAN ACHUTHAN, ECONOMIC CYCLE RESEARCH INSTITUTE Usually, you see two negative quarters of GDP. 18:32:13 BETSY STARK (VO) Marked by rising unemployment and a slowdown in consumer spending. But if there is a recession, there will be no headline announcing when it starts. 18:32:23 LAKSHMAN ACHUTHAN We will not know when it started for a year or so after it's begun. 18:32:29 BETSY STARK (VO) So if the experts won't know, how will you? Well, even if your financial situation stays the same, you're likely to feel different if people all around you are losing their jobs and their homes. 18:32:42 PROFESSOR KIT YARROW, CONSUMER PSYCHOLOGIST It causes us to feel fear that we might lose what we have. 18:32:46 BETSY STARK (VO) The fear is contagious no matter how wealthy you are. Low-income consumers may fear they won't be able to fill up their gas tanks. Middle-income consumers may fear their homes will be worth less than what they paid for them. Upper income consumers may fear a falling stock market will decimate their retirement funds. 18:33:06 PROFESSOR KIT YARROW People are really anticipating a future that might be worse, which is causing them to pull back now. 18:33:12 BETSY STARK (VO) People we talked to today are already hunkering down. 18:33:16 CONSUMER, FEMALE I always think twice before I buy something new. And now, I'm thinking three and four times. 18:33:20 BETSY STARK (VO) The pullback in spending sets a vicious cycle in motion. As consumers spend less, sales fall, businesses cut production, many stop hiring workers or lay them off, unemployment rises, incomes fall, and consumers pull back some more. 18:33:36 CONSUMER I was supposed to go out for dinner with a friend tonight, as a matter of fact. And she called me and said, 'Could we eat in?" 18:33:42 BETSY STARK (OC) You hear a lot of things like that in a recession. But keep in mind, even if the numbers never add up to an official recession, things can slow down so much that it still feels like a recession. In parts of the country hit hard by the housing slump, it sure feels like a recession already, Charlie. 18:33:58 CHARLES GIBSON (OC) All right. Betsy Stark, reporting tonight. Thanks.