US consumers are underpinning the economy's recovery and aren't retrenching in response to concern over falling stocks and corporate accounting scandals, Federal Reserve Chairman Alan Greenspan said.
"It is certainly the case that the surveys of consumer confidence have gone down," Greenspan told the House Financial Services Committee. Consumer spending hasn't, he said. "Our interest is actually what people do, not what they say."
Fed officials expect the economy to expand by as much as 3.75 percent this year, Greenspan said. That's faster than the 2.5 percent to 3 percent foreseen in February, and a sign the economy is weathering the drop in stocks, he said.
"All the evidence we've been able to accumulate in recent weeks suggests that the economy is improving," he said in the second of two days of testimony on the economy and monetary policy. The accounting system "is frayed, but it is not broken."
In recent weeks, questions about corporate governance have hurt stocks, and that threatens to undermine spending by consumers and businesses, Greenspan said.
Consumers may react "for some time to the declines that have occurred in equity prices," he said. The "potential for additional revelations of corporate malfeasance" may also slow the expansion, and terrorism remains a threat, he said.
For now, there's no sign that eroded confidence has cut into spending, Greenspan said. "We're seeing in the retail markets, especially motor vehicles, evidence that the consumer has not retrenched in any material way," he said.
Eight companies in the S&P 500, including Xerox Corp, so far have announced plans to restate results for 2001, and more may do so, he said.
"If we get a lot of restatements, and I presume we may very well, I'm not sure that's all bad," Greenspan said. "What they're suggesting is the issue which gripped everyone for a number of years, to manage your earnings so you could affect your stock price, is going to disappear."
Tame inflation and concern that the recovery is fragile have led central bankers to refrain from increasing interest rates "to allow the strong fundamentals to show through more fully," Greenspan said, suggesting policy makers are unlikely to raise rates any time soon. The Fed's benchmark overnight rate stands at a four-decade low of 1.75 percent.
"Overall there are always elements in a complex economy such as ours which suggest things are not going straight up," Greenspan said. "They are not and I hope they all don't," because that would mean the economy was "out of balance," he said. "We're poised for a reasonably good expansion."
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