U.S. Economy Too Busy to Worry About Y2K

Updated 3:49 PM ET November 30, 1999

By Glenn Somerville

WASHINGTON (Reuters) - Businesses are not stockpiling goods ahead of Y2K in any way that could color the economy's performance either before or after New Year's, analysts said.

That may be because the U.S. economy is growing at such a fevered tempo that companies, consumers and investors had have little time to worry about whether their computer systems will fail, or the flow of imported goods will be disrupted.

"Caution is in the wind, panic is not," said economist Lawrence Horowitz of Primark Decision Economics Inc. in Boston. Trying to meet booming consumer demand seems to be as big a concern for businesses as anxiety over Year 2000, he noted.

Some industries are making preparations for possible buying surges or supply interruptions at year-end. But they appear to have little to do with Y2K, another economist said.

"There are some reports that pharmaceutical companies are stocking up in anticipation of extra purchases by consumers, and some extra buying of imported oil is going on," said economist Lynn Reaser of Bank of America Private Bank in Jacksonville, Fla.

"But generally, what inventory-building there is seems more related to strong buying earlier in the year than to Y2K concerns," she added. Companies are struggling to keep goods on their shelves with the traditional holiday shopping season that runs from Thanksgiving through Christmas off to a brisk start.

Year 2000, or Y2K, worries stem from past programming in computer software that records years by the last two digits, so that when 2000 rolls around they may stop calculating completely or make mistakes because they think it is 1900.

Previously, it was expected that manufacturers, wholesalers and retailers would stock up heavily in the second half for fear that goods from overseas might dry up, at least temporarily, as a result of any computer glitches.

Analysts say a wave of buying before year-end to lay in extra supplies could be followed by a slowdown in inventory-building early in 2000 that would mean reduced production and slower economic growth.

That scenario is still intact -- but for different reasons. Economist David Orr, of First Union Corp. in Charlotte, N.C., noted there was a substantial pick-up in inventory stockpiling in the third quarter -- to $33.9 billion a year from $14 billion in the second quarter.

"But it's a leap of faith to say that it was Y2K-related because it comes when consumer sales are so strong and companies are trying to keep up with it," Orr said.

He noted that so far there were no signs of withdrawals from equity mutual funds or bank drawdowns of credit lines that had been predicted ahead of Year 2000.

"None of these things is happening," said Orr, who closely monitors weekly banking data. He noted banks have added to their cash reserves significantly by about $20 billion in the first six weeks of the fourth quarter, in line with regulators' urging for banks to have ample cash on hand in case people wished to withdraw more at year-end.

But there were few signs of massive stockpiling of goods.

"So far if anything of that nature is going on, it's a stealth movement," he said. "It's below my radar screen."

Reaser of Bank of America similarly noted that a bout of uneasiness in financial markets had also settled down. Some companies brought debt and equity issues to market in the third quarter rather than wait till the fourth.

Instead, stock prices have rallied and there is no evidence of "flight-to-quality" buying of U.S. Treasury securities by foreigners in advance of Year 2000. Disruptions to computer systems are expected to be more common abroad, especially in less developed countries.

"If anything, consumer and investor concern has diminished, rather than increased," Reaser said.

She forecast U.S. economic growth will ease from the third quarter's sizzling 5.5 percent annual pace to 4.2 percent in the fourth quarter and to 3 to 3.5 percent in next year's first quarter.

Analysts still were watching for signs of accelerated inventory-building, with attention focused on Wednesday's release of the National Association of Purchasing Management report.

Last month's report for October showed the inventory component climbing above a breakeven level of 50 -- meaning that more companies were adding to inventories than were drawing them down -- for the first time since last November.

"There is no doubt that some inventory-building is going on, but the extent of actual hoarding that some had talked about earlier is virtually negligible," said Horowitz.

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Ray

-- Ray (ray@totacc.com), November 30, 1999

Answers

Great. Less inventory for them, more for me. I see I will have to head to Super Wal Mart tonight and see about building my inventory a little more. Never can have enough soup on hand for those cold winter days.

-- y2k dave (xsdaa111@hotmail.com), November 30, 1999.