Colorado Springs Real Estate

Experts send mixed messages on economy

The Associated Press, The Gazette Telegraph

New York - No wonder there's confusion over the economy.  Even experts appear divided on where it is headed next.

Federal Reserve officials were out during the past week, saying the economy is slowly gaining strength and should be on the right track thanks to recent interest rate cut.

But a new survey of chief executives at many of the nation's largest companies offers a more pessimistic view, warning they don't expect a big uptick in economic growth anytime soon.

Talk about mixed messages.  It's not surprising investors are rushing to put money in the stock market, consumers are skimping on holiday gifts and businesses are holding back on spending.

There's no denying the economy took a turn for the worse in the past few months.  And that's after a years of fits and starts.

Economists say growth in the fourth quarter could come in as low as 1 percent, down from 3.1 percent from July through September.

The jobless rate has been on the rise, manufacturing is down and businesses aren't hiring or investing in plants or equipment.  Add to that consumers who are turning more cautious after being the driving force in the economy even through its toughest times during the past two years.

Those factors combined were enough to push the Federal Open Market Committee, the Fed's policy-makers, to reduce the federal funds rate by larger-than-expected 1/2-point to 1.25 percent.  It was the first rate cut this year and the 12th since early 2001.

Lower rates ease borrowing costs and increase the incentive to invest.  That, the Fed hopes, will spur more consumer spending and renew business buying, which in turn will give the economy a much-needed jolt.

Fed officials took that message on the road this week

Fed Vice Chairman Roger Ferguson, Fed Gov. Susan Bies, Fed Gov. Mark Olson, Minneapolis Fed President Gary Stern, Philadelphia Fed President Anthony Santomero and San Francisco Fed President Robert Parry made public appearances this week plugging the Fed's action.

"This additional easing of policy is aimed at helping the economy work through the current soft spot," Ferguson said in his speech in Pittsburgh.  "The pieces are in place to engender a gradual strengthening in economic activity in coming quarters."

Fed Chairman Alan Greenspan, in his testimony Wednesday to Congress, said the economy hit a "soft patch" as corporate scandals and a possible war with the Iraq shook consumer and business confidence.

But Greenspan said the most likely outlook for economic growth is "to come out of this soft and to start accelerating."

All the upbeat talk from the Fed comes at the same time a new survey looking at economic expectations was released by The Business Roundtable, an influential association comprised of 150 chief executives from top U.S. companies including IBM, General Motors and Coca-Cola.

About two-thirds of the survey's respondents predicted economic growth would be less than 2 percent next year, well below the 3.2 percent average during the past decade.

Sixty percent of the CEO's said that company's employment will drop next year, while 11 percent expect to add more jobs.

Fifty-seven percent expect their spending to stay the same in 2003, and 24 percent expect a decline.  Nineteen percent expect to spend more next year.