GREENSPAN TELLS ECONOMY UP, PROFITS RISING
The Federal Reserve Board’s chairman, Mr. Alan Greenspan, is not known to speak his mind. That is, in simple, clear, commonly spoken terms. But he was outspoken during his two-day, twice-yearly, appearance before Congress on behalf of the Fed’s policy making open market committee, which commenced with the Senate banking committee on Tuesday, June 20.
If that was unusual, what he spoke also was not the ordinary. Inflation and interest rates are the common things for him to talk. Of course, he spoke of these. But he also spoke about the economy and corporate sector. Straight up, that is. That both these are now in the ascendant. He said the economy was up and growing and corporate profits were rising.
For the economy the Fed chairman made three specific observations, all of them upbeat.
One, a broad-based and self-sustaining recovery is under way.
Two, present notable employment gains are to stand enhanced.
Three, the power of consumer spending is to remain strong significantly to contribute to the recovery.
For the corporate sector were made two important observations. Both are similarly upbeat.
One, corporate profit margins have widened.
Two, rising company profits are to absorb rise in unit labor costs without their translating into inflation.
Take heart then in what Greenspan tells and thank him, not only for telling it, but also for telling so clearly.
Yes, the Fed chairman also talked of inflation and interest rates, too. Yet, he said, with the corporate outlook changing for the better, the companies and the economy could be accommodating any increases brought upon by inflation in interest rates.
But the economic recovery is not to spell any significant rise in inflation, Greenspan observed. And therefore there is not to be any sharp rise in interest rates while whatever increases made are to be at intervals and in small measures. Greenspan has provided a clear indication of this.
To the Senate banking committee he furnished the Fed’s forecast of inflation based on core personal consumption expenditure. It is put at 1.75-2 per cent this year and at 1.5-2 per cent in 2005. These rates of inflation are not to cause major increases to be made in interest rates.
The stock market is not still swept by Greenspan’s statements. But since the Fed chairman’s testimony to Congress the U.S. dollar has hardened in the currency market.
Meanwhile, going by the second quarter corporate results being disclosed, the 500 largest U.S. public companies look set to deliver earnings growth of more than 20 per cent year-on-year on for the fourth consecutive quarter, which is only the fifth time in 50 years. Thomson First Call has forecast earnings in the remaining two quarters of this year will rise year-on-year by more than 15 per cent, which is more than the growth rate projected three months ago.
A point to note about the current corporate results is that they are still coming in several sectors of built-in capacity, which is coming in use with improving demand.
If that was unusual, what he spoke also was not the ordinary. Inflation and interest rates are the common things for him to talk. Of course, he spoke of these. But he also spoke about the economy and corporate sector. Straight up, that is. That both these are now in the ascendant. He said the economy was up and growing and corporate profits were rising.
For the economy the Fed chairman made three specific observations, all of them upbeat.
One, a broad-based and self-sustaining recovery is under way.
Two, present notable employment gains are to stand enhanced.
Three, the power of consumer spending is to remain strong significantly to contribute to the recovery.
For the corporate sector were made two important observations. Both are similarly upbeat.
One, corporate profit margins have widened.
Two, rising company profits are to absorb rise in unit labor costs without their translating into inflation.
Take heart then in what Greenspan tells and thank him, not only for telling it, but also for telling so clearly.
Yes, the Fed chairman also talked of inflation and interest rates, too. Yet, he said, with the corporate outlook changing for the better, the companies and the economy could be accommodating any increases brought upon by inflation in interest rates.
But the economic recovery is not to spell any significant rise in inflation, Greenspan observed. And therefore there is not to be any sharp rise in interest rates while whatever increases made are to be at intervals and in small measures. Greenspan has provided a clear indication of this.
To the Senate banking committee he furnished the Fed’s forecast of inflation based on core personal consumption expenditure. It is put at 1.75-2 per cent this year and at 1.5-2 per cent in 2005. These rates of inflation are not to cause major increases to be made in interest rates.
The stock market is not still swept by Greenspan’s statements. But since the Fed chairman’s testimony to Congress the U.S. dollar has hardened in the currency market.
Meanwhile, going by the second quarter corporate results being disclosed, the 500 largest U.S. public companies look set to deliver earnings growth of more than 20 per cent year-on-year on for the fourth consecutive quarter, which is only the fifth time in 50 years. Thomson First Call has forecast earnings in the remaining two quarters of this year will rise year-on-year by more than 15 per cent, which is more than the growth rate projected three months ago.
A point to note about the current corporate results is that they are still coming in several sectors of built-in capacity, which is coming in use with improving demand.
