Officials of the US Federal Reserve have begun talking down the possibility of a recession, leading to speculation that any rate cut later this month will be a modest quarter of a point.
The latest report of the US index of leading economic indicators suggests the economy will slow further, reinforcing expectations for Federal Reserve interest-rate cuts next week.
However, Mr Ken Goldstein, an economist at the Conference Board that compiles the index, said while the report suggests "more moderation in economic activity in the first half of 2001", he sees "no recession looming".
Several heads of district federal banks have expressed similar views. Ms Cathy Minehan, president of the Boston Federal Bank, said: "Modest growth for the year as a whole is the most likely outcome".
Mr William Poole, president of the St Louis Federal Bank, said: "Growth prospects remain excellent."
The comments were most likely made with the full approval of Federal Reserve chairman, Mr Alan Greenspan, suggesting that he wishes to play down expectations of a half point decrease in rates. On January 3rd, Mr Greenspan cut rates by half a percentage point following a sharp drop in the purchasing managers' index. The Federal reserve will next meet on January 30th and 31st.
The Conference Board's index, used to predict economic activity over the next three to six months, fell 0.6 per cent last month - the largest drop since January 1996 - after declining 0.4 per cent in each of the prior two months.
December's drop reflected a rise in layoffs and declines in consumer confidence and the number of factory hours worked, falling stock prices and a drop in the yield on the 10-year Treasury note relative to the Fed's overnight bank lending rate.
The index contained some positive factors, including new orders for consumer goods. It has also been wrong in the past, forecasting a slowdown in 1996 when there was 4 per cent growth.
The US economy slowed in the third quarter of last year to a 2.2 per cent annual growth rate from a 5.6 per cent second-quarter pace. Figures for growth in the final quarter have not been published but it is estimated at 2.5 per cent by analysts surveyed by Bloomberg News.
Wall Street has been hit almost daily by signs of slowing growth particularly in the technology sector. Dell Computer Corporation on Monday cut its fourth-quarter earnings forecast by 30 per cent.
Lucent Technologies, the world's largest telecommunications equipment maker, which last year missed its profit targets and fell behind rivals in the key optical networking market, is to announce a plan today to cut $1 billion (€1.07 billion) in costs and trim jobs as well as post a quarterly loss.
Lucent employs 700 people in Ireland in software development, GSM base station development, cable manufacturing and optical and data networking. The Lucent website continues to predict rapid expansion in Ireland in the coming year however.
