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,"
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
"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
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
Predictions of business inventories, in particular, reflect
the millennial uncertainty, said Doug Croushore, the assistant
vice president at the Philadelphia Fed who coordinates the
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
"People are a lot more uncertain there in the fourth
quarter and you can see that in the variance of the forecasts,"
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