The name of the Neiman Marcus department store chain was misspelled in a Sept. 9 Business article. (Published 9/28/04)
Federal Reserve Chairman Alan Greenspan said yesterday that U.S. economic growth picked up in recent weeks but is still restrained by high oil prices.
Greenspan, appearing before the House Budget Committee, said the spring surge in energy prices weakened the economy more than analysts had expected. He suggested that uncertainty about oil prices continues to cloud the economic outlook.
"If it weren't for the oil price spike, I would be very optimistic about where the economy is going," Greenspan said in remarks that contrasted with a more upbeat assessment in July, when he spoke of a quickening economic expansion.
Greenspan also repeated his call for Congress to restrain the growth of the federal budget deficit. He said failure to do so could cause inflation, interest rates and government debt payments to rise to economically damaging levels in coming decades.
The Fed chairman stressed that he was speaking only for himself, not for his central bank colleagues. Yet by noting signs of economic improvement, he bolstered analysts' expectations that Fed policymakers will stick to their plan to raise a key short-term interest rate when they meet Sept. 21. Financial markets showed little reaction.
"The most recent data suggest that, on the whole, the expansion has regained some traction," Greenspan said. He noted that retail sales and housing starts rebounded in July after falling in June, that job growth revived in August after essentially stalling the previous two months and that business investment has continued to rise.
However, he noted some reasons for caution. He said August retail sales appear to have been "mixed." Stores such as Wal-Marts, which market primarily to middle-income households, reported lackluster back-to-school sales. But chains with a more upscale clientele, such as Nieman Marcus, reported stronger results.
Meanwhile, automakers announced production cuts because their dealers' lots are clogged with unsold vehicles.
Other signs of weakness persist. Intel Corp., the world's largest computer-chip maker, and Rite Aid Corp., the nation's third-largest drugstore chain, lowered their sales forecasts for coming months because of sluggish sales. Delta Air Lines said yesterday that it will cut as many as 7,000 jobs -- 10 percent of its workforce -- during the next 18 months and reduce pay for its remaining employees as it tries to stave off bankruptcy.
Greenspan made his remarks as the presidential candidates fight to shape voters' perceptions of the economy in the final weeks of the campaign.
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.
"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.
Another theory, alluded to by Greenspan, is that high oil prices were symptomatic of global turmoil and uncertainties that caused businesses to pull back on hiring and consumers to cut back on spending.
"I know it has an effect, I know it's there," Greenspan said of the oil price surge. "I'm almost certain that at $30 oil, we would be doing better than we are today, but by how much, I think it's extraordinarily difficult to judge."
Greenspan's remarks largely echoed the findings in the Fed's latest survey of regional economic conditions, released yesterday.
"Economic activity continued to expand in late July and August, although several districts indicated that the pace had slowed since their last reports," the 12 regional Fed banks reported in the survey known as the "Beige Book."
The results were mixed, according to the report, which compiles anecdotes from businesses across the country to help Fed policymakers in Washington get a feel for the economy as they prepare for their policymaking meeting.
Auto sales, for example, were "sluggish" in the Cleveland and Richmond districts over the past six weeks, but improved in St. Louis and San Francisco.
Kansas City and Dallas said small vehicles were outselling sport-utility vehicles and light trucks; the opposite was true in Atlanta and Chicago.
Women's accessories and jewelry were in high demand. But sales of back-to-school items, particularly children's clothing, were disappointing.
And while consumer prices "were generally flat or up modestly," the Fed districts "continued to cite noticeable price increases for oil."