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Strategies & Market Trends : Cents and Sensibility - Kimberly and Friends' Consortium -- Ignore unavailable to you. Want to Upgrade?

To: stan s. who wrote (20910)	10/28/1999 9:25:00 PM
From: stan s.	Read Replies (1) \| Respond to of 108040

Commentary from Greenspan's speech. Futures are up. No that's not the commentary! cnbc.com by Scott Gerlach Bonds Editor Federal Reserve Chairman Alan Greenspan returned, Thursday evening, to perhaps his favorite economic subject: productivity. In a nutshell, he suspects impressive productivity gains -- the best counter to inflation -- will continue. What's he trying to tell us? Perhaps that the Fed is more comfortable with the current inflation environment than many economists believe; maybe he thinks rates are high enough. Read the text of Greenspan's Florida address Key outtake from the chairman's text: "It may no longer be the case that an acceleration in demand presages an overheated and unstable economy, if the demand growth is caused by growth in productivity." Greenspan spells out succinctly a "virtuous cycle" of rising productivity, strong economic growth and low inflation: Technology evolution expands the universe of profitable investments, spurring both investment and spending -- and boosting growth Meanwhile, businesses' technology deployment boosts productivity (output per hour worked) and keeps costs low, minimizing the need to raise product prices Competitors don't raise their own prices for fear of losing market share That's a pretty standard discussion of the benefits of rising productivity. Economists generally agree productivity has grown more strongly in recent years than in the previous couple of decades, helping to explain why our economy has been able to grow quickly without lifting inflation. But the Fed chief goes further in this address than usual. He points out that gross domestic income has swelled beyond gross domestic product, even though these two are "conceptually equivalent." That suggests, he says, that productivity is growing even more rapidly than government measurements indicate. "Although it is still is possible to argue that the evident increase in productivity growth is ephemeral," the Fed chairman says, "I find such arguments hard to believe." Nevertheless, he asserts that today's productivity growth can't abolish inflation forever, at least not on its own. The economy can't outgrow the labor force -- which it has been doing lately -- for too long before demand for workers pushes up wages, and that starts to worsen corporate profitability and spur companies to raise prices. But he holds out hope that market forces may contain such a problem and return the economy to health without too much prodding from monetary policy. He notes the tremendous rise in "real" interest rates -- the difference between interest rates and inflation -- over the past two years. Higher rates make financing more expensive, cooling spending and limiting inflation. These words ought to inspire more confidence among investors, particularly in the long-suffering bond market.