The Chairman of the US Federal Reserve, Mr Alan Greenspan has said the business cycle in the United States had recovered its momentum since the disruption of September 11th, but that other factors would moderate the speed of any recovery in the US economy.
Mr Greenspan forecast that growth in the United States would rise by two and a half to three per cent this year.
Testifying to a Congressional financial services committee, Mr Geeenspan said that there was evidence that the downturn in high-tech investment was coming to an end and that the US was emerging from a particularly mild recession.
"Despite the disruptions engendered by the terrorist attacks of September 11, the typical dynamics of the business cycle have re-emerged and are prompting a firming in economic activity," Mr Greenspan said.
"An array of influences unique to this business cycle, however, seems likely to moderate the speed of the anticipated recovery.
"As the fourth quarter progressed, business and consumer confidence recovered, no doubt buoyed by successes in the war on terrorism. The improved sentiment seemed to buffer the decline in economic activity.
"Indeed, in the past several months, increasing signs have emerged that some of the forces that have been restraining the economy over the past year are starting to diminish and that activity is beginning to firm.
"The appearance of these signs, in circumstances in which the level of the real federal funds rate was at a very low level, led the Federal Open Market Committee to keep policy unchanged at its meeting in late January, although it retained its assessment that the risks were tilted toward economic weakness.
"Through much of last year's slowdown, however, spending by the household sector held up well and proved to be a major stabilizing force. As a consequence, 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.
"Changes in household financial positions in recent years are probably damping consumer spending, at least to a degree. Overall household wealth relative to income has dropped from a peak multiple of about 6.3 at the end of 1999 to around 5.3 currently. Moreover, the aggregate household debt service burden, defined as the ratio of households' required debt payments to their disposable personal income, rose considerably in recent years, returning last year to its previous cyclical peak of the mid-1980s.
"Even if the economy is on the road to recovery, the unemployment rate, in typical cyclical fashion, may resume its increase for a time, and a soft labor market could put something of a damper on consumer spending."
Mr Greenspan said that preliminary data suggested "that productivity has held up very well of late, and history suggests that any depressing effect of rapid productivity growth on employment is only temporary."
He said that recent evidence suggested "that a recovery in at least some forms of high-tech investment could already be under way. Production of semiconductors, which in the past has been a leading indicator of computer production, turned up last fall. Expenditures on computers rose at a double-digit annual rate in real terms last quarter.
But the contraction of investment expenditures in the communications sector, where the amount of over-capacity was substantial, as yet shows few signs of abating, and business investment in some other sectors, such as aircraft, hit by the drop in air travel, will presumably remain weak this year."
The Fed chairman concluded that "even a subdued recovery beginning soon would constitute a truly remarkable performance for the American economy in the face of so severe a decline in equity asset values and an unprecedented blow from terrorists to the foundations of our market systems.
"For, if the tentative indications that the contraction phase of this business cycle is drawing to a close are ultimately confirmed, we will have experienced a significantly milder downturn than the long history of business cycles would have led us to expect. Crucially, the imbalances that triggered the downturn and that could have prolonged this difficult period did not fester."