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To: Enigma who wrote (16677)	8/26/1998 7:14:00 PM
From: Alex	Respond to of 116764

Will Economy Remain Immune to Global Turmoil? By Caren Bohan WASHINGTON, Aug. 26, 1998 (Reuters) - A remarkably resilient U.S. economy has so far fended off major damage from the financial crisis that has sent markets tumbling from Caracas to Moscow, but will it eventually succumb to the growing global turmoil? Economists are sharply divided on that question, leading to forecasts for the U.S. economy that are all over the map and range from a ''doomsday'' scenario of a recession and stock-market meltdown to more robust growth. ''It casts a cloud of great uncertainty over the U.S. economy,'' former Fed Governor Lyle Gramley said of the global turbulence. For his part, Gramley saw a middle ground between the doomsayers and the optimists, predicting that the problems in Asia and other countries would on balance amount to a ''mild negative'' for the U.S. economy. But Joel Prakken, chairman of the St. Louis forecasting firm Macroeconomic Advisers LLC, saw a wide divergence in the outlooks from a group of around 20 clients he surveys weekly. Forecasts for U.S. third-quarter growth ranged from 1 percent to 3.5 percent and from 1 percent to 4 percent in the fourth quarter in the latest poll, Prakken said. In tandem with that divergence, economists are split on whether the Federal Reserve is likely to raise interest rates as its next move or cut them. So far, though, the sturdiness of the U.S. economy in the face of the global woes has surprised many analysts. Just over a year ago, when a currency crisis erupted in Thailand, few economists were prepared for the prospect that it would spread throughout Asia, eventually engulfing Russia and threatening emerging economies in Latin America. As key Asian economies have slid into recession, the U.S. trade deficit has surged to record levels, prompting predictions of a severe drag on U.S. growth and raising worries about the health of stock market as corporate sales abroad tumbled. That led to widespread expectations of a downshift in the U.S. economy and murmurings of a potential recession. Gross domestic product growth in the second quarter of 1998 cooled to a moderate 1.4 percent rate after its 5.5 percent growth spurt in the first three months of this year. But that slowdown came amid a major strike at General Motors Corp. and a large scaling back of inventory building by U.S. firms. Many forecasters had overlooked some ''silver linings'' from the difficulties abroad, such as a sharply lower interest rates as investors flocked to the safe haven of U.S. Treasuries and slashed import prices. The low rates have prompted a boom in the housing market while falling prices of everything from clothing to gasoline to appliances have enticed ever-larger numbers of Americans to the shopping malls. Underscoring the strength on the domestic side of the economy were figures released Tuesday by the National Association of Realtors showing that sales of previously owned U.S. homes surged 4 percent in July to a record annual rate of 4.93 million. ''It's mind-boggling how rapidly the domestic side of the economy is growing,'' said James Annable, chief economist at First Chicago/NBD, who estimated that without the negative effects on the trade sector the U.S. economy might have been growing by a rate of 6 percent to 7 percent. Annable was in the camp that expected the economy to keep expanding briskly, fueled in part by the stronger dollar that has bolstered the purchasing power of Americans. Economist Fred Breimyer of State Street Bank and Trust Co. in Boston had a much more pessimistic outlook, predicting that some of the positive influences from the global crises, such as the lower U.S. rates would start to fade in importance. Breimyer outlined three possible scenarios for the U.S. economy. The first would be a ''soft landing'' in which the expansion slows but remains on track; second, was a ''hard landing'' or recession scenario; and third would a ''crash,'' including a severe recession and meltdown in the stock market caused by the global turmoil. builder.hw.net