Greenspan's assessment of the economy optimistic

WASHINGTON -- Federal Reserve Chairman Alan Greenspan offered his most optimistic assessment of the U.S. economy in more than a year, telling Congress Thursday that the country is now recovering from its first recession in a decade. \nGreenspan's testimony to the Senate Banking Committee was more upbeat than his outlook just a week ago. \n"The recent evidence increasingly suggests that an economic expansion is already under way," Greenspan said. That assessment was not part of his testimony to the House Financial Services Committee last week. \nSince Greenspan's last appearance on Capitol Hill, a batch of encouraging economic news has been released providing strong evidence that the country is on the mend from the recession, which began in March 2001. \nFor the first time in 18 months, a key gauge of manufacturing activity flashed a growth signal in February. Consumers, the lifeblood of the economy, spent more freely in January. And, the economy bounced back with a 1.4 percent growth rate in the fourth quarter of 2001, after shrinking at a 1.3 percent rate following the Sept. 11 terrorist attacks. \n"The economy appears to be turning," Greenspan said. \nEven with his more upbeat assessment, Greenspan cautioned Americans not to anticipate a red-hot rebound. \n"An array of influences unique to this business cycle seems likely to moderate its speed," Greenspan said. \nBecause consumers kept buying throughout the slump, they will have less pent-up demand. That means spending probably won't rise as quickly as in past rebounds, making the recovery less robust than usual, Greenspan said. \nThat strength in consumer spending, which accounts for two-thirds of all economic activity, is a key reason why the economy didn't sink deeper into a recession. Consumer spending on big-ticket items, such as homes and cars, is usually hard-hit during recessions. \nEconomists said Greenspan's remarks make it all but certain that the Fed's aggressive rate-cutting campaign has ended. They predict that Fed policy-makers, who left short-term interest rates unchanged in January, will forgo a reduction at their next meeting on March 19. \n"The Fed chairman was extremely cautious last week and seemed to be tiptoeing around the idea that an economic rebound could be forming," said economist Joel Naroff of Naroff Economic Advisors. "Today, he seems willing to accept the fact that the economy has turned a corner, but he still sounded caution about the strength of the expansion that will follow." \nNaroff suggested Greenspan's more upbeat remarks could be the first step toward trying to prepare the country for the possibility that the Fed could boost interest rates sometime down the road. \nLynn Reaser, chief economist at Banc of America Capital Management, agreed. "The Fed has done its work and succeeded in helping to foster a recovery and now the challenge will be to manage the expansion," Reaser said. She predicted that the Fed's first rate increase could come as soon as midyear. \nStocks were mixed Thursday. By late morning the Dow Jones industrial average had lost 48 points but the Nasdaq index was up 5 points. \nRecent reports, meanwhile, also have shown that orders to U.S. factories for big-ticket manufactured goods, including cars, has been picking up. \n"We have seen encouraging signs in recent days that underlying trends in final demand are strengthening, although the dimensions of the pickup remain uncertain," Greenspan said, in another addition to his Senate testimony that wasn't included in his House testimony. \nGreenspan said that consumer spending received a considerable lift from the sales of cars and trucks, which were remarkably strong in October and November, aided by major financing incentives. \n"Sales have receded somewhat, but they have remained surprisingly resilient," Greenspan said. "Other consumer spending appears to have advanced at a solid pace in recent months." \nGreenspan repeated his belief that the recession will probably turn out to be the mildest in U.S. history. \nBased on current data, the drop in economic output during this recession, as measured by the gross domestic product, is a small 0.3 percent, which would make this the mildest recession ever. That record has been held by the 1969-70 recession, which GDP fell by 0.6 percent. \nEconomists predict the National Bureau of Economic Research, the recognized arbiters of when recessions begin and end, will declare this one ended in December, January or February. \nThe Federal Reserve slashed interest rates 11 times last year in an effort to revive the economy. Many economists believe those rate cuts will pave the way for the economy to return to healthy growth rates in the second half of this year. \nEven as the economy recovers, the nation's unemployment rate -- now at 5.6 percent -- is expected to rise in the months ahead because companies will be reluctant to quickly hire back laid-off workers. \nDuring a question-and-answer period, Greenspan repeated his support for a temporary extension of jobless benefits for unemployed workers, saying doing so would be a "most reasonable approach." The House passed a bill with those benefits Thursday.