Greenspan: Capital Spending Outlook Good

Federal Reserve Chairman Alan Greenspan on Friday he saw no bubble in the U.S. housing market and added that longer-term prospects for crucial capital spending were sound even with a mixed near-term outlook.

And while there was probably some statistical "noise" in recently released first-quarter productivity data showing an annualized growth rate of 8.6 percent, the Fed chief said, productivity growth remains strong, thus lifting the pace at which the economy can grow without triggering inflation.

In a wide-ranging question session after a speech to a banking conference here, Greenspan also said recent increases in oil prices bore watching. But he added that they would have to be much larger damaging the economy, which is in the fragile early stages of recovering from last year's shallow recession. 

"With a fairly large amount of exploitable capital investment out there, the short-term outlook for capital investment is rather mixed, but the longer term outlook is increasingly, persuasively good," the Fed chairman said. 

Economists have said that a resurgence in business spending is critical to the sustainability of the expansion, since consumer demand is not expected to give a big fillip to growth and a boost from inventory restocking is unlikely to last. 

Fed policymakers this week left short-term interest rates unchanged at four-decade lows as they waited for clearer signs that the recovery is secure. 


Greenspan played down concerns that residential house prices over the past few years constituted an asset bubble. 

"I don't think we have a bubble in house prices," he said, citing market dynamics that made it more difficult for buyers to jump on a bandwagon as in the stock market. He added that recent data show some softening of home prices as well. 

"If there is a big boomlet going, it's not showing itself in the most recent data. The most recent data show some edging off in the overall markets," Greenspan said. 

On worker output, he reiterated that productivity is "the most important question" for the long-term economic outlook, but that recent figures showing an 8.6 percent annual pace did not amount to "a long-term trend." 

He said the sharp drop in capital investment may have actually enhanced productivity growth, or output per hour worked, because the level of disruption to workers from new technology was reduced. 

Productivity is seen as critical for increasing the long-term potential rate at which the economy can grow without raising price pressures because employers can roll out more goods and services without adding to payrolls. 

Right now, inflation in the U.S. economy remains subdued as shown in producer price data released earlier on Friday showing the wholesale inflation eased 0.2 percent in April, but if activity does pick up later in the year, inflation worries could return to the radar screens. 

But Greenspan did warn against complacency on the recent rise in oil prices. While saying he did not think the recent climb had done any economic damage, he said: "It's an issue which you can very easily tranquilize yourself into believing it's not an important problem, but I haven't succeeded in tranquilizing myself yet on this issue." 

Separately, Greenspan said it was important for companies to count options granted to officers as expenses because it could help reveal whether a corporate strategy was working. 

"If you're getting labor services through stock options rather than cash compensation, and you don't expense them in one form or're making the statement that the value of those services are zero," he said. 

The Fed chief, whose opinion is respected by both Wall Street and Washington, last week urged regulators to overhaul rules on stock options in the wake of the unraveling of disgraced energy trader Enron Corp -- diverging from the Bush administration which wants to keep the status quo. 

His speech earlier focused on banks' efforts to better manage their lending risks, saying that would help lessen the tendency of bank lending to follow ups and downs in the overall economy.