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Alan Greenspan says US economy in a `soft spot'

The US economic recovery is going through a soft spot but signs appear to be increasingly positive, Federal Reserve Chairman Alan Greenspan said Tuesday.

US gross domestic product growth will to fall short of the dramatic 5.6 annual pace posted in the January to March period, Greenspan told a bankers' conference.

"We are not going to grow at the pace we grew in the first quarter and indeed we are going through a soft spot," Greenspan said. "I suspect that the American economy is in an upswing. It is not going to be a dramatic upswing -- it can't -- but the events look increasingly positive."

The powerful US Federal Reserve boss said the inflation outlook was remarkably subdued, but the economic rebound would be limited by the moderate pace of the downturn.

"The US economy can't rebound as we have in the past, largely because we don't go down very far and if you don't go down very far there is not much you can go up to," he said.

Greenspan said the Federal Reserve's economic outlook had remained basically unchanged since January.

The central bank chief has repeatedly cautioned that a sustained recovery depends on a second-stage ignition in the form of final demand: consumer spending, exports and business investment.

While underlying trends of final demand have been strengthening, the dimensions of the pick-up are unclear, he warned last month.

US consumers have steadily kept up the pace of expenditure throughout the economic recovery. But the missing ingredient has been a sustained increase in business investment.

A slew of reports have shown manufacturers picking up activity, however. And strong productivity gains have led some analysts to forecast richer profits that may allow companies to invest again.

US manufacturers ramped up activity in May to the fastest pace in more than two years as new orders piled up, an Institute for Supply Management survey showed Monday.

But some economists are now questioning whether consumers can keep up the pace of spending in the face of a weak labor market. The US unemployment rate hit an eight-year high of 6 percent in April.
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