FEATURE-Robust U.S. economy seen unharmed by Y2K

y Michiyo Yamada

WASHINGTON (Reuters) - The United States, the powerhouse of global economic growth, should glide into next year despite fears of chaos from the Y2K computer bug, and analysts expect the robust U.S. economy to remain unscathed.

A few alarmists say problems -- starting with power cuts, traffic jams or panicky party-goers stuck in malfunctioning elevators -- could help trigger a recession, but most dismiss these fears and say the good times are not over yet.

"It's almost a sure thing that we're going to see some failures but these are going to be isolated events," economist Carl Tannenbaum of LaSalle Bank in Chicago said.

In fact, many analysts say the feared Y2K glitch, if computers misread the year 2000 and fail to perform their tasks, has added fuel to the strong U.S. economy because firms have hired experts to fix computer systems and have beefed up inventories of emergency goods that consumers may buy.

Economic consultant Joel Naroff said the overhaul of old computer equipment could bring a lasting payoff to the economy in the form of productivity gains. "A lot of businesses, especially in the last two years, have decided that, as they got deeper into Y2K, they would just junk what they have and bring on more current, productive systems," he said.

"It limits the negative effect (from Y2K) and it creates greater capacity to ... grow as we go through the year 2000."

WATCH SMALL BUSINESSES IF COMPUTER PROBLEMS LOOM

Naroff said the first quarter of 2000 could be artificially weak but he predicted healthy growth for the year. "I think there is a good chance that we wind up with GDP growth of the 2.5 to 3 percent range even with the very soft first quarter. It's still pretty strong."

The U.S. economy grew 3.9 percent last year and economists expect a similar rate for 1999.

Y2K doomsayers such as self-styled alarmist Edward Yardeni, chief economist at Deutsche Morgan Grenfell in New York, seem very much in a minority.

"My major concern is the global supply chain," Yardeni said. "There will be lots of little local disasters all around the world that would add up to major global problems."

He said he was worried about a lack of readiness among small businesses, which account for 45 percent of U.S. GDP. He said their problems could hit suppliers, customers and other small firms, causing ripple effects throughout the economy. As a result, he said, there could be a recession next year.

But many of the other economists who do expect some drag on the economy from Y2K believe the impact will be limited -- like the brief disruption to growth from last year's General Motor's Corp. strike or from the 1996 federal government shutdown.

They expect the fourth quarter of this year to be robust, lifted by aggressive stocking of inventories among businesses and by some consumer hoarding of emergency goods such as batteries, canned goods, safes and home-generators.

The first part of the new year could bring a slowdown as demand for these goods drops off. But most economists said it would not be catastrophic.

"If consumers are going to prepare for Y2K and buy goods in the fourth quarter, their spending would become slower in the first quarter," Lyle Gramley, economic consultant to the Mortgage Bankers Association, said. "If they buy things ahead of time they do not need to buy for a second time."

SPENDING SPREE SEEN AS SHOPPERS STOCK UP

Gramley compared any Y2K impact to a major hurricane and said its effect would be forgotten within a few years.

Many manufacturers and retailers are already positioning themselves to profit from a short-term spending boom, pointing to surveys showing that nearly a fifth of U.S. households plan to stock up on food or water.

A survey for the CBS News program Sunday Morning showed 18 percent of 722 adults questioned were considering withdrawing cash from the bank, upgrading their computers or copying financial and electronic records -- just in case.

St. Louis-based Energizer battery manufacturers says it expects 200 million more batteries to be sold in the run-up to Dec. 31. Production will rise 20 percent from normal high holiday-season output from October through December.

Douglas Black, a retailer in Kensington, Maryland, said customers were waiting up to three months for generators -- their insurance policy in case the lights go out next year.

Marc Tolbert, manager of Auxiliary Electric Power Company, a retailer in Virginia, said sales of emergency generators for home use have seen a surge like that before a hurricane.

A popular standard six-kilowatt home-use generator costs about $3,000, he said. "Last year, for this range, I sold two generators per month. I am selling 8-10 per month this year."

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Ray

-- Ray (ray@totacc.com), August 02, 1999

Answers

Gramley compared any Y2K impact to a major hurricane and said its effect would be forgotten within a few years."

Well, I feel better now...

-- greg (balzerg@ix.netcom.com), August 02, 1999.

A lot depends on whether gasoline will be as plentiful next year as it is this year...

-- Linkmeister (link@librarian.edu), August 02, 1999.

"The impact will be forgotten in a few years."

Yep, hardly anyone will remember in 500-600 years...

-- Mad Monk (madmonk@hawaiian.net), August 02, 1999.

Ya know, you don't have to be a Polly to appreciate that some fact good times are resulting from the stockup...Duracell alkaline batteries hava a 5 year shelf life, stocking up is a no brainer. Instead of a couple of pounds of pasta and a four Lb. box of Minute rice, lay in ten boxes of rice, twenty to thirty lbs. pasta. You're going to use it eventually, ditto for Tuna at 50 CENTS a can.

Now, if Y2K is mild to middling, I can see a slowdown as those inventories are rediced gradually. Say I have 5 20 lb propane tanks...I use one every 6 weeks for barbecueing...so maybe Propane distributers suffer first 9 months of the year...Yardini may be right that we do have a slowdown early next year.

And never forget...it's an ELECTION YEAR!!!

-- K. Stevens (kstevens@It's ALL going away in January.com), August 03, 1999.