Cautiously upbeat, Federal Reserve Chairman Alan Greenspan said Wednesday there are mounting signs of an end to what has turned out to be one of the country's mildest recessions. He said Americans shouldn't anticipate a robust recovery.
This was an unusual recession, he said, in that consumers kept buying throughout. So their spending probably won't rise as quickly as in past rebounds, and total economic growth this year should be about half what it has averaged during the first year of previous recoveries.
The "recuperative powers of the US economy ... have been remarkable," Greenspan said, given the severe blow delivered by last September's terrorist attack.
He said businesses will be boosting production in coming months providing the fuel to lift the country out of its downturn.
Greenspan said the fact that consumer spending, helped by low mortgage rates and attractive auto financing offers, had stayed strong in the months immediately following the attacks had helped make the recession a mild one.
Another promising sign: Businesses are beginning to invest more in high-tech equipment, one of the areas especially hard hit as companies cut capital spending to cope with the slump, Greenspan said.
Even so, the Federal Reserve expects the economy this year will grow by between 2.5 percent to 3 percent, when measured from the fourth quarter of last year. That would represent about half the pace of the normal rebound from a recession.
The Fed's forecast also saw unemployment, now at 5.6 percent, continuing to rise in the coming months because companies will be reluctant to quickly hire back laid-off workers also could hold down spending, he added.
Still, hopeful signals about the economy's direction led the Fed last month to leave interest rates unchanged, Greenspan told Congress. Fed policy-makers cut rates 11 times last year.
Economists said the tone of Greenspan's remarks makes it all but certain that the Fed's aggressive credit-easing campaign has drawn to a close. Analysts predicted interest rates will hold steady in the months ahead, though some believe rates could begin to go up later this year, depending on the strength of the rebound.
Greenspan's remarks suggested "cautious optimism in the sense that economic data do seem to be coming up roses, yet a few thorns remain on the stems, namely weak business investment spending, higher unemployment rates and the uncertainties surrounding the collapse of Enron," said Richard Yamarone, economist with Argus Research Corp. He predicts a rate increase by midyear.
If bankrupt energy giant Enron Corp. had provided shareholders and investors with accurate financial information from the start, rather than trying to hide their massive losses, Greenspan believes the company would have taken a hit but probably would have survived.
"Had they, for example, recognized the losses that they actually had in these affiliates early on, I have no doubt that it would have hit their stock some, but it would have had a negligible impact relative to what actually happened," Greenspan said. "It was a very expensive business mistake which they made," he said. "Had they had a correct set of accounts ... they would not be" in bankruptcy.
On the economy's outlook, the Fed forecast the unemployment rate to peak at between 6 percent and 6.25 percent later this year. That would be significantly below the 7.8 percent jobless rate hit in the last recession, in 1990-91.
Inflation was forecast to be moderate this year, with consumer prices as measured by a price gauge in the gross domestic product to increase by about 1.5 percent, little changed from the 1.3 percent gain of 2001.
(China Daily February 28, 2002)
