Tags: Greenspan | Points | Slow | Economic | Recovery

Greenspan Points to Slow Economic Recovery

Wednesday, 27 February 2002 12:00 AM

"Increasing signs have emerged that some of the forces that have been restraining the economy over the past year are starting to diminish and that activity is beginning to firm," the Fed chairman said in a statement to a House of Representatives committee.

In fact, the central bank now projects real gross domestic product, the sum of all goods and services produced in the United States, rising to between 2.5 to 3 percent in 2002, compared to the 0.1 percent growth posted in 2001. Also, Greenspan told assembled representatives that given the economic upturn in recent months, further government economic stimulus was unlikely to be necessary.

But in his semi-annual testimony on the state of the U.S. economy before the House Financial Services Committee, Greenspan pointed out that even if this growth target were to be reached, it would still be below the rate of earlier recoveries.

"Such a pace for the growth of real output is somewhat below the rates of growth typically seen in earlier previous expansions," the chairman said, adding that he "remains concerned about the possibility of weak growth for a time, despite the very low level of the federal fund rate."

At first blush, however, it does indeed appear that the domestic economy has weathered the ups and downs of Sept. 11 and the stock market's decline. Indeed, the Commerce Department reported earlier Wednesday that January's durable goods new orders climbed 2.6 percent from the previous month, with high-tech orders for the past three months soaring a whopping 30.2 percent compared to the previous year.

Meanwhile, Greenspan noted that most people have been able to weather the stock market's downturn since March 2000 as the majority of dot-com companies tumbled. He claimed that the stock market's decline affected only upper-income households, and household spending on average has been little affected by the drop in equity prices. In particular, the continued buoyancy of the real estate and housing market, where the majority of middle-class earners are invested in the most, is keeping consumer spending steady.

As for the collapse of energy trading giant Enron Corp., Greenspan said that while the company's bankruptcy has affected a great number of employees and will also alter the country's perception of corporate governance, its demise has not adversely affected the energy supply of the nation, and thus has only had a limited impact on the economy.

"The U.S. economy has experienced a substantial shock, no doubt, we continue to face risk in the period ahead," Greenspan said. "But the response thus far of our citizens to these new economic challenges, provides reason for encouragement."

Nevertheless, the Fed chairman acknowledged the possibility of consumer confidence and spending being hurt in coming months, particularly as companies continue to fire employees in an effort to cut costs.

"Perhaps most central to the outlook for consumer spending will be developments in the labor market," Greenspan said, pointing out that the Fed projects the nation's unemployment rate rising still further from 6 to 6.25 percent in 2002, compared to the 5.6 percent posted the previous year.

The central bank cut its key federal funds target rate 11 consecutives times last year, but had ended its aggressive easing cycle at its last meeting on Jan. 30, stating that the economic outlook appeared "more promising."

Given that Greenspan appears to be more optimistic about economic prospects since then, most analysts agree that the Fed is unlikely to cut rates any time soon.

The Fed's policy-making Federal Open Market Committee will next meet March 19.

Stock prices on the New York Stock Exchange and the Nasdaq Stock Market ended mixed Wednesday, as blue chips gained on upbeat comments from Greenspan and tech shares retreated led by Cisco Systems Inc.

The blue-chip Dow Jones industrial average gained 12.32 points, or 0.12 percent, to close at 10,127.58, having lost 30.45 points Tuesday. The tech-heavy Nasdaq composite index, meanwhile, shed 14.95 points, or 0.85 percent, to close at 1,751.91, having eased 3.02 points in the previous session.

The broader New York Stock Exchange composite index was ahead 5.75 to 583.09, and the Standard & Poor's 500 index was ahead 12.46 to 1,121.84. The American Stock Exchange composite index gained 0.23 points to 864.64. The Wilshire 5000 rose 4.37 points to 10,363.06, and the Standard and Poor's 500 index rose 0.51 point to 1,109.89.

Big Board volume was at 1.39 billion shares. Nasdaq volume reached 1.91 billion shares. Advancers beat decliners 1,912 to 1,208 on the NYSE, and gainers also outnumbered decliners 1,810 to 1,718 on Nasdaq.

Investors bought shares as Greenspan expressed confidence that the nation's economy was emerging from recession. But high-tech shares were sold off later in the day as computer network giant Cisco's earnings forecast was slashed by a Wall Street analyst. Still, the market was somewhat encouraged overall by the Fed's chairman's comments, given that he sounded more confident that the economic contraction was over than in public remarks earlier this year. Still, Greenspan made clear he did not expect rip-roaring growth rates.

Copyright 2002 by United Press International.

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Increasing signs have emerged that some of the forces that have been restraining the economy over the past year are starting to diminish and that activity is beginning to firm, the Fed chairman said in a statement to a House of Representatives committee. In fact, the...
Wednesday, 27 February 2002 12:00 AM
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