Economy May Avert Hard Landing After All

greenspun.com : LUSENET : Grassroots Information Coordination Center (GICC) : One Thread

http://dailynews.yahoo.com/h/nm/20010204/ts/economy_leadall_dc_5.html

fair use act quotation: for educational and reserach purposes

Economy May Avert Hard Landing After All

By Svea Herbst-Bayliss

NEW YORK (Reuters) - In January fear was rife that the U.S. economy was fast hurtling into a ditch, but now in early February there is some hope that a crash may be avoided.

Already the Federal Reserve (news - web sites)'s aggressive full percentage point cut in short-term bank rates last month signaled first aid was on the way, and then new data suggested the economy was merely swerving, not spinning out of control.

``Flirting with recession is different from scoring,'' Steve Ricchiuto, chief U.S. economist at ABN Amro said, explaining that the heap of new numbers, which look forward and backward, suggest ``it is much too early to declare the recession.''

Last Friday, a shimmer of hope appeared when the Labor Department said job growth was still strong in January as 268,000 new jobs were added to payrolls, significantly more than the 83,000 gain that markets had expected.

Following on the heels of strong car sales and construction data, economists said there were now more signs that the economy still has pockets of strength that may allow the Federal Reserve to take more time in planning its next move.

Even a top central banker sounded a more optimistic note on Friday, two days after the Fed cut rates and about one week after Fed Chairman Alan Greenspan (news - web sites) said plainly that growth may well be at zero now.

Although the U.S. economy hit an ``air pocket'' at the end of last year, Robert McTeer, president of the Federal Reserve Bank of Dallas, said he still sees a good chance for the record-length expansion to roll on.

Financial markets, too, cheered up some and pushed the dollar higher plus snapped the bond market's three-day rally as dealers saw less need for the Fed to keep cutting rates at the aggressive half-point pace set last month. But stocks fell as investors worried how the slowdown would affect the technology sector.

``A month ago, the whole world changed night and day, but (last) week the world wasn't being rewritten, rather it was being fine tuned,'' Ricchiuto said.

Still economists also cautioned that it was too soon to sound an all clear for the world's largest economy that saw growth slow to 1.4 percent last quarter, its weakest in 5-1/2 years, and drastically below the heady days of last summer's 5.6 percent growth rate.

In the wake of those growth numbers, several Wall Street investment banks shifted their forecasts to say the economy would now contract in the first quarter of 2001. One house, Morgan Stanley Dean Witter, expects to see two back-to-back quarters of no growth, which would put America into recession.

And growth numbers were not the only pieces of soft economic news swamping Wall Street last week.

The manufacturing sector, which accounts for one-fifth of the U.S. economy, officially slipped into recession when it reported its sixth-straight month of contraction in January as manufacturers struggled with high energy costs, sluggish consumer demand and an overhang of inventories built up when the economy was booming in the first half of 2000.

Also consumer confidence tumbled to its lowest level in four years with the drop in January marking the biggest one-month decline seen since the early 1990s when the United States was last in recession.

Despite the storm clouds, there may be a sliver of hope.

``I think people have overreacted to some of the recent data and selectively picked out the very weak ones like manufacturing and ignored that other parts of the economy like housing are still doing well,'' said Henry Willmore, chief U.S. economist at Barclays Capital.

For example the inventory overhang that hobbled the manufacturing sector may be soon disappear, economists said after automakers reported they sold vehicles at a seasonally adjusted annualized pace of 17.2 million vehicles in January, far more than December's 15.4 million.

Similarly encouraging is the fact that job growth in the private sector for the last three months has been running at a slightly stronger pace of an average 112,000 new jobs added than in the previous three months.

And construction spending rose 0.6 percent in December, with most of the strength coming from the commercial sector and some data on retail sales suggested that the month could be relatively strong.

``While we are definitely looking for a slowdown we are not looking for a recession, and even though I was tempted to turn my forecast for growth into a contraction this week, I am now glad I haven't,'' Barclays' Willmore said.


Following on the heels of strong car sales and construction data, economists said there were now more signs that the economy still has pockets of strength that may allow the Federal Reserve to take more time in planning its next move.

The Big 3 are shuttering factories and throwing out workers, no economic harm in that. Yup, Sure....

Tomorrow is a big day, for Calif. Depending on how that goes will answer a whole lot of questions.

-- (perry@ofuzzy1.com), February 05, 2001

Answers

Perry, Don't bank on it! Some of those big talkers (including Easy Al) don't even know we're already in a recession. You saw what all the interest rate reductions did for Japan. Down to zip and it didn't do diddly.

-- Warren ketler (wrkttl@earthlink.net), February 05, 2001.

Moderation questions? read the FAQ