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Non-Tech : Auric Goldfinger's Short List -- Ignore unavailable to you. Want to Upgrade?

To: RockyBalboa who wrote (7128)	12/10/2000 6:42:35 PM
From: Sir Auric Goldfinger	Read Replies (2) \| Respond to of 19428

MARKET WATCH: Dissecting the Nature of the Downturn By GRETCHEN MORGENSON ow that Alan Greenspan is on record as alert to the economic slowdown unfolding in the United States, investors can breathe a collective sigh of relief and start buying stocks again. Or can they? The equity indexes bounced back last week, on the hope that imminent interest- rate cuts would deliver the economy and corporate profits from disaster. But this time it may not be that simple. All economic slowdowns are not created equal, and some economists believe that the characteristics of the current one are more worrisome than equity investors seem to think. "An important question for the Fed in the months ahead will be whether the economy is decelerating in a way that it desires," said Henry Willmore, chief United States economist at Barclays Capital in New York. "Answering this question entails more than simply looking at G.D.P. growth." Instead, investors must look at how much of the growth in gross domestic product comes from productivity increases and how much from job creation. One force — slower job growth — would be far preferable for the Fed and would have better results for investors, Mr. Willmore said. If the economic slowdown comes from more modest job creation than the nation has seen recently, the Fed will be pleased because it means that inflation stays in check. In Mr. Willmore's view, the Fed would like to see employment growing by 50,000 to 100,000 jobs a month. If, however, growth stalls because productivity falls, it will keep the Fed policy makers on inflation alert and thus less likely to cut rates aggressively. Slowing productivity means that companies cannot offset rising wages with higher earnings. "This puts more pressure on firms to pass through cost increases to consumers and has a negative effect on consumer prices," Mr. Willmore explained. The steep nature of the deceleration is what troubles Stephen S. Roach, chief economist at Morgan Stanley Dean Witter. "As recently as the second quarter of 2000, the year-over- year growth rate of real G.D.P. in America was 6.1 percent," he said. "That rate by the middle of next year will be about 1.9 percent, a 4.2-percentage-point deceleration." Mr. Roach pointed out that such a drop would exceed the sharpest decline — of about three percentage points — seen in the recession of 1990-91. "The deceleration we're seeing now was last seen in 1982," he said. "This is a recession-style compression in the growth rate. It's coming with great speed. And that speed of compression really could be destabilizing in influencing business decisions with respect to capital spending and could even be unsettling to consumer expectations." At the same time, Mr. Roach sees no new sources of growth elsewhere in the world to pick up the slack for the United States. Indeed, because America has been the most powerful engine of global growth in recent years, its weakness would have a greater impact. Mr. Roach said economic growth in the United States accounted for 30 percent of total global growth between 1997 and 2000, in excess of America's 22 percent share of the world G.D.P. A result, he added, is a 40 percent chance of a hard landing. Mr. Roach said the Fed chairman's speech this week signaled that he was prepared to do more to avoid a hard landing, but that is not where Mr. Greenspan thinks the economy is heading. "He'll be reactive, not proactive," he said. "Whatever the Fed does early next year will be too little, too late to forestall the outcome in 2001. The next round of Fed easing will have more of a bearing on the upturn that follows than on the slowdown that lies ahead."