While consumers pay down debt, Greenspan worries that the savings rate is [allegedly] negative, as we depend on Mr. Market's generosity; see notes on his latest speech:
biz.yahoo.com
Does anyone think that these savings rate stats are bogus? Didn't Gene Epstein do an article on that a couple of months ago in Barrons?
FOCUS-Greenspan says wealth gains
driving spending
(adds details in paras 8-9, 11-13)
WASHINGTON, May 24 (Reuters) - Federal Reserve Chairman Alan
Greenspan said on Monday that U.S. consumers were using capital
gains from both the stock market and equity built up in their homes
to fuel strong spending.
He noted that incomes were rising ''fairly solidly,'' but the increases in purchasing were far outpacing
those gains.
''As a consequence, the amount of saving has not only gone down, but now has turned negative,''
Greenspan told the National Retail Federation.
He was referring to statistics from the U.S. Commerce Department showing that in the first quarter, the
personal saving rate fell to negative 0.5 percent, the lowest since record-keeping began in 1946. That
suggested consumers were drawing down their savings to finance spending.
''Certainly, the very sharp rise in stock prices has been a major force there,'' Greenspan added.
But he said, ''The wealth effect is not wholly a consequence of the stock market.'' He noted that
consumers also had access to wealth through equity built up in their homes, which they could tap either
through mortgage refinancings or by selling their houses at a profit.
Greenspan appeared at the Retail Federation to receive an award for leadership in public service.
Discussing the retail picture, he described it as ''one of the most impressive parts of the American
economy's performance.''
He said he had not seen retail markets like those today in all of his 50 years watching the economy. He
said that the wealth effect was a significant factor in spending by those in upper- and middle-income
groups.
Greenspan said those consumers did not perceive themselves to be spending in deficit. ''They are looking
at their 401Ks,'' he said, remarking on employees' retirement savings accounts, many of which have
reaped huge gains from the stock market.
Asked about the Year 2000 computer bug and how financial institutions were grappling with it,
Greenspan replied that banks were ''ahead of the curve'' in preparing their systems for the century data
change.
Greenspan did not offer any predictions about the economy or the stock market in his fairly brief
remarks.
Last week, Federal Reserve policy makers decided to keep interest rates steady for now, but warned they
were leaning toward possibly raising rates in the future.
The Dow Jones Industrial Average fell 174.61 points, to 10,654.67, led by a sell-off in technology and
financial stocks. An influential Wall Street analyst had issued a rare ''sell'' recommendation on
multinational bank stocks Monday, citing concerns over the Year 2000 computer bug. |
