Greenspan says US expansion is 'well under way'

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Alan Greenspan, the US Federal Reserve chairman, yesterday gave his most upbeat assessment of the economy since 11 September, saying that every sign was the economy was growing again – after a recession that may never have been.

Testifying to the Senate Banking Committee, Mr Greenspan hailed "encouraging signs in recent days" that demand was strengthening: "Increasingly the recent evidence suggests an economic expansion is under way."

Those signs include a pick-up in manufacturing activity, a fall in the number of first-time jobless claims reported yesterday and an unexpected boost in productivity in the final quarter of 2001. Capping everything was a revised GDP growth of 1.4 per cent for that period, meaning that despite the terrorist attacks the US has not even met the minimum definition of recession, of two consecutive quarters of negative growth.

If it is classified as a recession, Mr Greenspan said it would probably be the mildest in US history – on current data a contraction of just 0.3 per cent.

With his customary caution, the Fed chairman noted that given the shallowness of the recent dip, during which the housing market and consumer demand remained remarkably strong, the recovery bounce might be less pronounced as in previous business cycles.

Even so some economic forecasters reckon first-quarter growth might come in as high as 4 per cent, pointing to overall 2002 growth as high as 3 per cent, and the optimism has fuelled a surge on Wall Street, carrying stock prices to levels not seen since last July.

Yesterday however share prices declined in the wake of Mr Greenspan's cheering words. The market also fears that stronger growth means that after 11 consecutive interest rate cuts, the Fed will shift to a tighter monetary policy.