Business spending vital, says Greenspan

Advertiser Staff and News Services

Federal Reserve Chairman Alan Greenspan, speaking via satellite to a meeting of bankers at the Hilton Hawaiian Village yesterday, said the speed and scope of economic recovery will be driven by business investment, because consumer spending won't increase as much as it has following past recessions.

Greenspan spoke at the annual convention of the Independent Community Bankers of America, which drew 2,500 bankers to Waikiki. The four-day meeting of executives from locally owned and operated banks ends today and included speeches by Federal Deposit Insurance Corp. Chairman Donald Powell and former Washington Redskin quarterback Joe Theismann.

Greenspan said spending on housing and retail goods held up better than expected over the past year.

"Although household spending should continue to trend up, the potential for significant acceleration in activity in this sector is likely to be more limited than in past cycles," he said. That means companies must boost spending for the recovery to gain speed, he said.

The Fed chairman used much of the language of his testimony to the Senate Banking Committee last week in expressing cautious optimism about the prospects for growth.

"We have seen increasing signs that some of the forces restraining the economy over the past year are starting to diminish and that activity is beginning to firm," he said.

Greenspan also noted the big drop in inventories over the past few quarters.

"Stocks in many industries have been drawn down to levels at which firms will soon need to taper off their rate of liquidation, if they have not already done so," he said. "With production running well below sales, the lift to income and spending from the inevitable cessation of inventory liquidation could be significant."

Inventories at U.S. wholesalers fell 0.2 percent in January to the lowest level in two years, the Commerce Department reported Monday.

Bloomberg News Service contributed to this report.