The US economy will get a boost by midyear from pent-up corporate demand for new equipment, technology and other investments, US Treasury Secretary Paul O'Neill said.
"From talking to business people, I'm confident there are a lot of projects that have been delayed that have economic return rates of 30 percent or more," O'Neill said during a Senate Appropriations subcommittee hearing. "Those projects will be funded as the optimism improves out there."
O'Neill's outlook for business investment was more optimistic than a forecast offered yesterday by Federal Reserve Chairman Alan Greenspan. Greenspan said any recovery in business fixed investment is likely to be "only gradual" this year and "will doubtless be less frenetic than in 1999 and early 2000."
Economic analysts, including Greenspan, say capital spending must pick up for a sustained recovery this year.
Investment also must return if O'Neill's prediction for the economy to grow in the fourth quarter at an annual pace of as much as 3.5 percent.
Private investment on equipment has been falling since the third quarter of 2000. The pace of the decline in investment on equipment is tapering off, dropping 4.8 percent from October to December of last year.
Peter Fisher, Treasury's undersecretary for domestic finance, said in a Florida speech today that "there are reasons to be optimistic" about the outlook for business investment.
He cited the recent rise in shipments of non-defense capital goods.
"In the second half of the year it will be crucial that business investment spending rebound from the path of contraction that has been evident since the summer of 2000." Fisher told a derivatives industry group.
Companies shed inventories in the final three months of last year, helping boost productivity to an "unexperienced" annual pace of 5.2 percent, said O'Neill, the former chairman of Alcoa Inc.
"Millions of American business people took timely action," he said.
The 1.4 percent annualized fourth quarter growth rate was "not heaven, but it's certainly not zero and it's certainly not two quarters in a row of negative growth," he said. Growth in the current quarter is "almost certain" to exceed 1.4 percent and the April to June period "will be a continuation of growth."
O'Neill was testifying in support of the Treasury department's fiscal 2003 budget request for US$16.7 billion to fund the Customs Service, the Internal Revenue Service and other Treasury agencies. O'Neill repeated his assertion that the US tax code is an "abomination" that stymies economic growth and encourages companies to seek offshore tax havens.
Asked to respond to criticism that Treasury, under the direction of others in the administration of US President George W. Bush, was turning a blind eye on individuals and companies that seek shelter from tax laws in places such as the Cayman Islands, O'Neill said "absolutely not."
O'Neill said Mark Weinberger, Treasury's assistant secretary for tax policy, is "very close" to publicly proposing administrative and legislative actions to "tighten the noose around people who would create abuses of the tax system."