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To: 2MAR$ who wrote (6855)	12/2/2000 10:45:27 AM
From: bobby is sleepless in seattle	Read Replies (1) \| Respond to of 8046

Stocks Rout Spurs Worries About Economy By Caren Bohan WASHINGTON (Reuters) - Ferocious selling on Wall Street this week has fanned fears the long-running U.S. expansion could be in for a rough ride in coming months. A calmer mood took hold Friday after a brutal previous session that saw the Nasdaq Composite Index plummet 4 percent. Nasdaq staged its worst performance since October 1987 during November. Other major U.S. indexes have fallen too, but not as dramatically as the technology-heavy Nasdaq. Private economists reckon upward of $2.5 trillion in wealth has been ripped from the U.S. economy since March 10, when the Nasdaq hit its high for the year. In what economists call the ``wealth effect,'' the U.S. economy in the late 1990s gained tremendous momentum from the stock market as both real and paper gains in wealth prompted dot-com millionaires and others to spend money on big-ticket goods like luxury cars and vacation homes. The spending in turn spurred brisk activity in key economic sectors such as construction and manufacturing. But as a period of rising wealth gives way to one in which easy money is hard to come by, the broader economy will take a hit. Economy Already Taking Hit Analysts say the effects of earlier stock losses have already shown up on the economy, which slowed abruptly in the third quarter of this year. ``The stock market is the major reason that the economy has slowed,'' said Lyle Gramley, a former Federal Reserve governor who is now a consulting economist with the Mortgage Bankers Association. Gramley said the market's impact on the economy has exceeded that of the six increases in interest rates undertaken by the Fed between mid-1999 and May of this year. Gramley was among the majority of economists who believe the economy -- which has continued to grow for an unprecedented 10 years -- would manage to keep moving forward, albeit at a much slower rate than its boom of recent years. But to many economists, a recession scenario is not nearly so far-fetched as it might have seemed last year. ``I'd put the risk of a recession at one in five,'' Gramley said. ``A year ago, I would have said it was one in 20.'' In keeping with the expectation of heightened risks for the U.S. economy, fixed-income investors have began to price the prospects of rate cuts by the Fed next year. U.S. gross domestic product in the quarter ended in September grew 2.4 percent -- a sharp deceleration from the second quarter's 5.6 percent and about half the 4.7 percent speed the economy recorded in the three-and-a-half years between the start of 1997 and the middle of this year. A SHOCK ABSORBER? The U.S. unemployment rate is still at a 30-year low of 3.9 percent, but initial claims for state jobless benefits -- a narrow but closely watched gauge of the job market -- have risen sharply in recent weeks. A series of sharp stock-price declines that will crimp consumer spending is not the only thing worrying analysts about the current climate on Wall Street. Burned by steep losses in Internet and high-tech holdings, Wall Street's big players are much more reluctant to hand out cash, leading to a scenario that economists say falls short of a credit crunch, but is clearly a move to tighter lending standards. As cash is rationed more carefully to businesses, economists said investment in plants, equipment and software -- which fuel economic growth -- will slow. But some economists said some of the gloom is overblown. Diane Swonk, chief economist at Bank One in Chicago, said that, since the economy has been growing so briskly in recent years and competition for workers is still strong, there are ''shock absorbers'' that will help ward off a recession. ``It might be hard for Wall Street to see it right now, but Main Street is hanging in there,'' Swonk said, adding the bursting of the bubble in the dot-com sector of the economy takes away some of the ``icing on the cake'' but will not be enough to stop the economy in its tracks.