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Greenspan may have an upbeat report

Fed concerns * Corporate accounting scandals and the resulting 31.3 percent plunge in the stock market last year hurt business and consumer confidence. * The unemployment rate in January stooda at 5.7 percent. * Oil prices are up 13 percent since the first of the year. * Corporations are being helped by high productivity growth and low borrowing costs.

Federal Reserve Chairman Alan Greenspan is likely to deliver an optimistic outlook on the US economy to Congress today, saying growth is poised to accelerate once investors, consumers, and corporate leaders know what will happen in Iraq.

The Fed chairman testifies before the Senate Banking Committee beginning at 10am Washington time, the first of two annual appearances before Congress to deliver the central bank's take on monetary policy and the economy. He's likely to be asked about President George W. Bush's 690 billion tax cut package, and about what, if anything, the Fed might do to spur growth.

Analysts expect him to sidestep direct comment on Bush's program and to say there's little more monetary policy can do for an economy that's showing signs of increased strength.

"What they have been saying is that once Iraq gets behind us, we should be doing a lot better," says James Glassman, director of US economic research at JP Morgan Securities Inc. "I think the evidence is on their side."

For the past eight months, Fed officials have said in speeches and policy statements that a lack of confidence is more to blame for restraining growth than some fundamental problem in the economy.

Corporate accounting scandals and the resulting 31.3 percent plunge in the stock market in the second and third quarters of last year hurt business and consumer confidence, the Fed said. Now, war tensions with Iraq get the blame for weak business spending, low stock prices, and anemic 0.7 percent growth in the fourth-quarter, the slowest in five quarters.

Fed officials don't know how a war with Iraq will affect the economy, and Greenspan is likely to deflect questions about how the central bank will respond to a conflict. Last week, Fed Vice Chairman Roger Ferguson said "the impact of war on the US economy is unpredictable" because "a war is one of those things one simply can't model."

Oil prices have jumped on war concerns, with the price of oil on the spot market up 13 percent since the first of the year.

Greenspan, however, has said that the price of oil is less important to the economy than it was, because "the use of energy generally, is 20 percent to 25 percent less intensive per dollar of" gross domestic product than a decade ago, he told business economists in England last year.

If oil prices fall, that would provide a boost for an economy that Fed officials have repeatedly said is poised to accelerate.

High productivity growth is boosting corporate profits and keeping consumer incomes buoyant, even as a dozen cuts in interest rates over the past 25 months have underpinned overall demand.

After a slow fourth quarter, economists surveyed by the Blue Chip Economic Indicators see growth picking up to a 2.7 percent annual growth rate this quarter, and quickening to 3.8 percent in the year's final three months.

Greenspan can note that manufacturing, one of the most cyclical parts of the economy, expanded for a third straight month in January, according to the Institute for Supply Management's Purchasing Managers Index.

The unemployment rate dipped in January to 5.7 percent, down from 6 percent in December, and the troubling decline in investment spending by businesses may have hit bottom in the third quarter of last year.

Corporate borrowing costs are also lower. The gap between the yield on an index of Treasury securities and an index of corporate bonds of similar average maturity narrowed almost a full percentage point from 2.72 percentage points on Oct. 10 to 1.85 percentage points as of Jan. 31.

Just how the economy performs over the next 18 months is critical to Greenspan's legacy. His chairmanship of the Board of Governors expires in June, 2004.
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