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To: Les H who wrote (766)	7/21/1998 11:57:00 AM
From: Box-By-The-Riviera™	Read Replies (1) \| Respond to of 3339

U.S. Economy Losing Altitude Fast By MARTIN CRUTSINGER AP Economics Writer WASHINGTON (AP) -- The high-flying U.S. economy is losing altitude, fast. After turning in a sizzling annual growth rate of 5.4 percent in the first three months of the year, the economy may have stopped growing and actually contracted a bit during the spring, something that has not happened since the last recession ended in 1991. This unusual volatility is being caused by a collision of powerful forces -- still strong consumer demand in America running up against a deepening financial crisis in Asia that is causing the U.S. trade deficit to soar to record levels. ''We are on a rollercoaster ride,'' said Sung Won Sohn, chief economist at Norwest Corp. (NYSE:NOB - news) in Minneapolis. ''The U.S. economy is clearly slowing because of the Asian contagion, and it could get worse.'' The latest guessing game is how the Federal Reserve will respond to this dramatic slowdown, with investors anxiously awaiting Fed Chairman Alan Greenspan's midyear economic report, scheduled to be delivered to Congress today. In advance of his remarks, many analysts believed Greenspan would signal that the Fed is still firmly on the fence, awaiting further information on Asia's impact in the United States before deciding which way to move interest rates. The Fed has been content to leave rates unchanged for the past 16 months, and analysts are in agreement that for the near term at least, that watch-and-wait stance will prevail. But down the road, either late this year or early in 1999, analysts believe the Fed will move. Which way is open to heated debate. Analysts who believe the Asian crisis, which has already plunged Japan into recession, will worsen and spread to Russia and developing countries in Latin America, are predicting the Fed's next move will be to cut rates to keep the U.S. economy out of recession. But other analysts, who believe Asia's effects will not be long-lasting in the United States, think the central bank will have grown concerned enough about inflation by early next year that Fed policy-makers will start increasing interest rates to slow growth. While there is debate about the future, there is little disagreement that the U.S. economy slowed dramatically in the just-completed April-June period as Asia's troubles sent the U.S. trade deficit skyrocketing. ''Asia is a big event. The collapse of economies that account for one-third of world output is nothing to take lightly,'' said Allen Sinai, chief economist at Primark Decision Economics in New York. Added to the drag from Asia, manufacturing activity has fallen as businesses try to work down a huge overhang of unsold goods. The seven-week-old General Motors (NYSE:GM - news) strike has also cut sharply into auto production. Some forecasters believe gross domestic product went from a 5.4 percent growth rate in the first quarter to a decline of 1 percent in the second quarter. If the GM strike drags on past July, if Asia's troubles deepen and spread to other parts of the world such as Russia, South Africa or Brazil or if the high-flying U.S. stock market suddenly comes back to earth, then the United States will be in for rougher days ahead. It is not out of the realm of possibility that GDP will shrink in both the second and third quarters. Two back-to-back quarterly declines in GDP is the classic definition of a recession. Faced with this weakness, ''the Fed will eventually have to step in and do something,'' said David Wyss, chief financial economist at Standard & Poor's DRI, who is predicting Fed rate cuts beginning next year. But other economists insist that Asia's impact on the United States will be sharp but brief. They say growth will resume this summer, and the tight labor markets, with unemployment near a 28-year low, will have Fed policy-makers soon worrying again about inflation. ''Eventually inflation will come back, and at the first sign of inflation, the Fed will raise interest rates,'' predicted Sohn.

To: Les H who wrote (766)	7/21/1998 12:03:00 PM
From: Box-By-The-Riviera™	Respond to of 3339

Greenspan advises banks to be cautious on lending WASHINGTON, July 21 (Reuters) - Federal Reserve Chairman Alan Greenspan on Tuesday advised banks to exercise caution in their lending, warning of risks of default. ''Now is the time to be circumspect,'' Greenspan told the Senate Banking Committee in his Humphrey-Hawkins testimony. He said many of the loans being made recently would have a higher non-performing ratio than loans made earlier in the U.S. economic expansion. He added it was remarkable that loan losses were not higher already.