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Y2K Stockpiling May Fuel U.S. GDP
By Scott Gerlach  Reuters
NEW YORK — Whether or not the Millennium Bug cripples the world's computers next New Year's Day, it has already altered U.S. economic forecasts, raising growth expectations for late 1999 and dimming them for 2000.

"I think there will be some stockpiling and some inventory building and some hoarding" of consumer products and raw materials, said David Blitzer, chief economist at Standard & Poor's. "That leads to almost a miniature economic cycle in the last two quarters of 1999 and very slow growth in the first quarter of the Year 2000."

Some economists believe businesses, fearing computer errors may hamper distribution systems, will gather a war chest of inventories later this year. And they say nervous consumer purchases of such "survival" items as bottled water, canned food and diesel-powered generators could enhance the effect.

"Within the last couple of months I have substantially changed my [Gross Domestic Product] forecast in large part because I'm expecting a human response to all the Y2K mania," Blitzer said.

Once the next century begins, this scenario goes, companies and consumers will find themselves far overstocked and will rein in their purchases for several months.

"In the beginning of the Year 2000, either the worst fears are realized and the Year 2000 bug eats some computers or, far more likely, a lot of people have six months of groceries to eat," Blitzer said.

Although few economists predict massive economic disruptions at the hands of millennial computer failure, a growing number now forecast a measurable impact on activity. Analysts caution, however, that modeling end-of-century inventory and growth patterns amounts to guesswork.

Stockpiling by consumers and companies may add about half a percentage point to GDP later this year only to retrace in early 2000, said Bill Witte, an associate professor of economics and fellow of the Indiana University Center for Econometric Model Research.

"You lose that in the first quarter" as purchases slow, Witte said. "Our feeling is that there's not going to be a lot of economic problems."

The millennium bug inhabits certain computer hardware and software that, because of design flaws, are unable to recognize dates after 1999. Expectations of its effects range from the barely noticeable to recession and civil unrest.

A survey released earlier this week by the Federal Reserve Bank of Philadelphia underscored the growing impact of Y2K on economic forecasts.

The 33 professional forecasters polled called, on average, for steady 2.4 percent annualized GDP growth in late 1999 and in the first quarter of next year. But they projected a 27-percent chance of contraction in first-quarter 2000, the highest percentage since first-quarter 1996, and individual forecasters saw as much as a 50-percent chance of declining GDP in the first quarter.

Predictions of business inventories, in particular, reflect the millennial uncertainty, said Doug Croushore, the assistant vice president at the Philadelphia Fed who coordinates the survey.

In the Philadelphia Fed poll, inventories were, on average, expected to rise about $50 billion in each quarter of 1999, with a modestly smaller $38 billion increase projected for first-quarter 2000. But the average tells only part of the story.

"People are a lot more uncertain there in the fourth quarter and you can see that in the variance of the forecasts," Croushore said.

Forecasts called for inventories to grow by anywhere from $10 billion to $100 billion, with 17 forecasts of $50 billion or more in the fourth quarter of 1999. For the first quarter of 2000, the economists' projections ranged from a $57.2 billion inventory loss to a $72 billion gain, and seven participants saw $30 billion or less of stock additions.

"Most of them didn't see much of a disruptive effect or anything like that," Croushore said, adding that "some [economists] were more worried about consumers, some businesses."

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