Is U.S. economic slowdown for real? Maybe not
By Barbara Hagenbaugh
WASHINGTON, June 23 (Reuters) - Investors are hailing signs of a U.S. economic slowdown, hoping the Federal Reserve's interest-rate rises may be over. They could well be wrong.
Economists warn that growth may roar back strongly in coming months following a pattern of the last two years.
In both 1999 and 1998, growth also slowed in the spring, only to pick back up in the summer. And some economists say the same may happen again this year.
``There is that pattern and it has not gone unnoticed,'' FleetBoston Financial chief economist Wayne Ayers said. ``That's one of the worries among a lot of economists.''
But Ayers and other economists said that although they expect growth will pick up in the third quarter, they are not convinced there will be as big of a jump as in previous years.
What is different is the Fed has raised interest rates six times -- a full 1.75 percent -- over the past year and those moves are sure to be felt throughout the economy.
Some also noted that the recent surge in oil prices will deflate spending as consumers are forced to allocate a greater share of their paychecks to gasoline to fill up their cars.
``There are some things that are probably sapping the strength of the economy,'' Don Ratajczak, a forecaster at Georgia State University, said. ``I do expect the third quarter to be slightly faster than the second,'' but not a huge boom.
The Fed's policy-making Federal Open Market Committee meets Tuesday and Wednesday amid widespread belief it will leave rates unchanged. But there is growing concern the Fed may have to lift rates in August if inflation creeps up.
One wild card will be the stock market. If stock prices rise, consumers will have more money to blow, fuelling growth.
``If we do get a (spending) pickup, the Fed will have to raise again,'' Salomon Smith Barney economist Chris Wiegand said. ``It could be August, it could be later in the year,'' he said, noting that his firm predicts the Fed will have to raise rates several times later this year.
NO SNOW, TAX RETURNS AND Y2K
In 1998, the U.S. economy grew at a 2.2 percent annual rate in the second quarter, down from a strong 6.9 percent in the first quarter. But in the third quarter, growth picked up to a 3.8 percent annual rate and reached 5.9 percent in the fourth.
Last year, U.S. economic growth cooled to a 1.9 percent annual rate in the second quarter, down nearly two percentage points from the prior quarter. But in the third quarter, growth soared to 5.7 percent and to 7.3 percent in the fourth.
In the first quarter this year, the U.S. economy grew at a 5.4 percent annual rate. Although official data for the second quarter will not come out until the end of July, it is almost certain to show the economy lost steam in the spring.
There is a raft of data backing this up, including a two-month drop in retail sales, an uptick in the unemployment rate and a decline in home sales.
Experts said many factors have led to a pattern of spring slowdowns followed by summer and fall pickups in recent years.
Most importantly, the last three winters have been unusually mild, fostering home building and buying. Without snow piling up in their driveways, consumers also have been getting out to spend money at malls and movie theatres.
By the time spring comes around, consumers have felt the need to put the brakes on buying after spending more than they anticipated during the winter.
Also in the last few years, the Internal Revenue Service has gotten refunds to taxpayers much more quickly than in the past, especially as electronic filing has become popular. Those early tax returns put money into U.S. consumers' pockets in the first quarter, giving them money to spend.
But in the second quarter, those who owe taxes are forced to pay up by April 15, giving consumers less money to spend. And those who received tax returns are more than likely to have gotten -- and spent -- their windfalls.
In yet another factor that could be causing a temporary lull, fears about the Y2K computer bug led firms and consumers to stockpile money late last year. When disaster failed to strike at the new year, people took the cash they had stashed and spent it. The money was gone by the second quarter.
12:53 06-23-00
|
