The next phase of the financial crisis may be a consumer spending pullback that drags the economy into a downturn with heavy job losses, Microsoft Corp. co-founder William H. Gates III and other business leaders warned at Harvard Business School today.
As worried consumers rein in purchases, depressing the leading engine of the US economy, businesses faced with falling sales could shed jobs and the nation's unemployment rate could climb to "north of 9" percent from the current 6.1 percent, Gates told more than 1,500 alumni at the school's Centennial Global Business Summit.
"Consumer sentiment has never been so low," Gates said, despite the efforts in Washington and other world capitals to get credit flowing. "So no matter how quickly this gets fixed, you're still going to have an economic cycle with a fairly significant recession."
Gates was part of a parade of speakers who addressed the risks of the spreading economic turmoil at a long-planned event that had been intended to celebrate Harvard's contributions to management education over the past 100 years. Coming in the midst of the worst economic crisis since the Great Depression, however, much of the talk centered on the fallout.
"Little did we imagine two years ago when we began planning this event what the world would look like today," Harvard Business School's dean Jay O. Light conceded in his opening remarks.
Gates, who now co-chairs the Bill & Melinda Gates Foundation in Seattle, which focuses on global health, wasn't the only speaker to caution about a consumer slump. Meg Whitman, former chief executive of eBay Inc. in San Jose, Calif., and national cochair of John McCain's presidential campaign, said US leaders need to restore confidence and ask ordinary people to help solve the problem.
"Most American consumers are deeply afraid," said Whitman, who noted that consumer spending accounts for 72 percent of the nation's economy. "They're seeing the value of their 401(k) go down, the value of their house go down, the price of food go up, the price of gas to fill up their tank is now a luxury, and they're scared."