Greenspan repeated his characterization of the recent slowdown as a "soft-patch," and said he still agrees with the Fed's assessment last month that the economy "appears poised to resume a stronger pace of expansion" -- a phrase that President Bush's campaign immediately broadcast.
Some analysts said yesterday that it is too early to conclude that the "soft patch" is ending.
Federal Reserve Chairman Alan Greenspan is questioned by a member of the House Budget Committee yesterday.
(Melina Mara -- The Washington Post)
|
_____Multimedia_____
•
Video: Federal Reserve Chairman Alan Greenspan said Wednesday the economy has "regained some traction" after a late spring slowdown that was triggered by a sharp spike in oil prices.
|
| |
|
"We would love to concur, but to our eyes there are only the faintest glimmers thus far of an end to the 'soft patch,' " said Ian Shepherdson, chief U.S. economist for High Frequency Economics Ltd., a research firm, in an analysis of the chairman's testimony. "All the evidence suggests August was a grim month for retailers. . . . It is too early to call the turn yet."
"Persistent high oil prices remain a shadow over the recovery," Nigel Gault, a U.S. economist with Global Insight Inc., another research firm, said in an analysis. The firm forecasts U.S. benchmark crude oil to stay at or above $40 a barrel through the middle of next year "and then fall only gradually."
Oil prices are the primary reason the Global Insight has lowered its forecast of U.S. economic growth next year to 3.3 percent, from 3.6 percent. That pace would be better than the 2.8 percent annual rate recorded in the April through June quarter this year, which was down sharply from the 4.5 percent rate of the first quarter.
Economists are "puzzled" about why surging oil prices weakened the economy more than their models had predicted, said Greenspan, who has studied the oil markets for decades as a private consultant and as a government policymaker.
The nation is far more energy efficient today than it was decades ago, when manufacturing accounted for a bigger share of the economy and cars burned more gasoline. In inflation-adjusted terms, oil prices are a little more than half of where they were at their peak in the early 1980s.
Yet the economy slumped markedly after oil prices rose above $40 a barrel in May. They have fluctuated above $40 since then, rising to just under $49 a barrel last month and receding to $42.77 a barrel yesterday at the close of trading on the New York Mercantile Exchange.
Some economists say oil prices hurt the economy more than expected because they slowed growth in many developing countries that are relatively less energy efficient, reducing demand for U.S. exports.
Others note that much of the strong U.S. economic growth of late last year and early this year was propelled by tax cuts and low interest rates, which gave people more money to spend. Gasoline prices went up this spring just as those effects were fading. The result was a sharp drop in household spending.
