Greenspan says slowdown not over yet

WASHINGTON--Federal Reserve chairman Alan Greenspan, delivering a sober assessment of the US economy, told Congress Wednesday that the sharp slowdown that began in the second half of last year "has yet to run its full course."

Greenspan's comments sent a clear signal that the Fed, which already reduced interest rates by a full percentage point in January, is ready to do more to prevent the faltering economy from skidding into a recession.

Testifying before the House Financial Services Committee, Greenspan blamed much of the economy's weakness on an effort by businesses to cut back quickly on production in the face of falling sales.

Wall Street apparently found little guidance in Greenspan's remarks. After the first hour of trading, the Dow Jones industrial average was down 22 points and the Nasdaq index was up 7 points.

Although companies are working hard to bring their excess inventories of unsold goods into better alignment with demand, Greenspan said, the process may take more time.

Excess inventories "built up in 1999 and 2000 have engendered a retrenchment that has yet to run its full course," Greenspan said, in a departure from testimony he delivered to the Senate Banking Committee on February 13.

Economists said Greenspan's remarks revealed more concern about the state of the economy than was evident in his Senate appearance.

"He is more worried today than he was two weeks ago, and he does feel the economy's problems will continue on longer than he previously thought, and more action on his part is necessary in terms of lowering interest rates," said Mark Zandi, chief economist for Economy.com, a consulting firm.

Zandi said it was unclear whether the Fed will cut interest rates before its next meeting on March 20 as Wall Street investors hope or wait until the meeting to do so. Still, Zandi said another half-point rate cut is on the way.

Before Greenspan's Capitol Hill appearance on Wednesday, the government released it newest estimate of economic growth, showing a dramatic slowdown at the end of last year.

Gross Domestic Product--the total output of all goods and services produced within the United States--grew at an annual rate of just 1.1 percent in the final three months of 2000, the weakest performance in more than five years, the Commerce Department reported. The government had previously estimated fourth-quarter growth at a 1.4 percent rate.

Greenspan also said he would keep a close eye on consumer confidence. How confidence holds up during the slowdown will be a big factor in determining whether or not there is a recession, he has said.

Consumer confidence has eroded further since Greenspan delivered his economic outlook report to the Senate just two weeks ago. Confidence dropped in February, the fifth straight monthly decline, to its lowest level since 1996, the Conference Board reported Tuesday.

"Changes in consumer confidence will require close scrutiny in the period ahead, especially after the steep falloff of recent months," Greenspan said.

In his testimony two week ago, Greenspan, while noting concerns about slumping confidence, appeared to strike a big more upbeat note. Even with the declines, he said at that time, confidence remained at a level consistent with economic growth. Greenspan omitted that line from Wednesday's remarks.

On a more positive note, Greenspan said the weakness in sales of cars and homes has been modest, "suggesting that consumers have retained enough confidence to make longer-term commitments."

He also said the exceptional degree of economic slowing so evident toward the end of 2000 seemed less evident in January and February.

Nevertheless, he added, "the risks continue skewed toward the economy's remaining on a path inconsistent with satisfactory economic performance," representing another change from his previous economic outlook.

Greenspan's assessment of the economy comes as President Bush rallies the nation behind his plan for a major tax cut and a budget blueprint that he says will shrink government debt while protecting education, Social Security and other popular programs.

The Fed slashed interest rates twice in January, totaling a full percentage point, the first time the central bank has moved so quickly during Greenspan's 14-year tenure. The first rate cut was on January 3, in a rare move between meetings of the Fed's chief policymaking group, the Federal Open Market Committee. The second cut came at a scheduled January 31 meeting.