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To: ms.smartest.person who wrote (303)	2/8/2001 2:45:53 AM
From: ms.smartest.person	Read Replies (1) \| Respond to of 2248

Lehman dismisses recession fear: Forecast says US consumer confidence drop unwarranted and growth will slow, not stagnate SUZANNE HARRISON -------------------------------------------------------------------------------- Forget talk of a recession. The United States economy is set for possibly just one quarter of slower - not negative or zero - growth this year and the second half could see an impressive recovery. According to Lehman Brothers, the drop in consumer confidence is not warranted and, while a slowdown is inevitable, growth will not stagnate. "There are a lot of reasons to think that things are getting better," Stephen Slifer, Lehman's chief economist in the US, said at its global economics conference yesterday. "Help is on the way from monetary and fiscal policy," Mr Slifer said, referring to the expectation of further interest cuts and possible tax cuts in the US. "I am looking for 3.5 per cent growth in the third quarter [this year]." US growth in the fourth quarter last year was 2.2 per cent, with the first quarter of this year expected by Lehman Brothers to grow by 1 per cent. However, Mr Slifer has predicted a 2.5 per cent gross domestic product figure for the second quarter. This differs from predictions of possible negative growth in the first half amid a severe slowing of the US economy. "We are looking for 1 per cent growth in the current quarter... but that is about the worst of it," Mr Slifer said. Recent reports from the US have scared consumers into thinking there is more bad news to come. Consumer sentiment dropped 10 points in December. According to a JP Morgan report this week, the purchasing managers' survey from the US - a key cyclical indicator - fell to its lowest level since the last recession and below the level consistent with zero GDP growth. Also, Deutsche Bank issued a report saying its economics team had downgraded its US GDP forecast for last year to just 1 per cent from 1.8 per cent earlier. This was the weakest growth rate since 1991. Deutsche blamed the outlook on a faster than expected decline in business and consumer confidence, excess inventory build-up and stronger than expected pressure on corporate profit margins. However, Mr Slifer said consumer spending should not collapse for a variety of reasons. "First, the unemployment rate is at a 30-year low, so people are not afraid of losing their jobs. "It appears that in this business cycle, companies are working people shorter hours rather than laying them off," he said. "Also, real disposable income is growing at about a 2 per cent pace . . . thus the consumer still has money to spend." Mr Slifer said that with the Fed in easing mode and stock markets beginning to climb, December was likely to have been the low point for confidence. "Is the drop in consumer confidence warranted? I don't think so. The Fed surprised everybody at the beginning of last month [with a 50-basis point rate cut] and we were caught with our pants down," Mr Slifer said. "The message they are sending is they are prepared to do whatever is necessary to make sure the economy begins to recover." biz.scmp.com