Many economists believe that Federal Reserve Chairman Alan Greenspan is less worried about the economy than he was just a few weeks ago.
"The exceptional weakness so evident in a number of economic
indicators toward the end of last year apparently did not continue
in January," Greenspan said in his twice-yearly report to Congress
on the state of the economy.
"Greenspan painted a cautiously optimistic view of short-term
economic conditions," said Richard Yamarone, economist with Argus
Research Corp. Economist Joel Naroff of Naroff Economic Advisors
believed Greenspan was saying that the economic slowdown might not
Greenspan also said the prospects for sustaining healthy gains
in productivity the amount of goods and services produced for
each hour worked in the years ahead "remain favorable."
Gains in productivity are the key to higher living standards
because they allow wages to increase without triggering higher
inflation that would offset the higher wages.
"If the forces contributing to long-term productivity growth
remain intact, the degree of retrenchment will presumably be
limited," Greenspan said.
While consumer confidence, which can be an important ingredient
on how the economy fares in the future, has fallen, for now it
remains at a level consistent with economic growth, Greenspan said.
"For monetary policy, it implies that the economy could prove
more resilient provided there is no breach in confidence," said
Robert DiClemente, managing director of economic and market
analysts at Salomon Smith Barney.
At the beginning of the year, economic growth was close to
"stalling out," Greenspan acknowledged, adding that much of the
weakness came as businesses quickly cut production as sales
slumped. He said, however, "at the moment we are not" in a full-blown
Nonetheless, "for the period ahead, downside risks
predominate," Greenspan said. These include whether consumer
confidence holds up during the slowdown and the extent to which
businesses will continue to reduce production in the months ahead.
The Associated Press contributed to this report