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Economy

Greenspan: 'Fear factor' spooks hopes for economic rebound

Diane Stafford - Kansas City Star

July 02, 2010 07:31 AM

Say "double dip" most summers, and we'd picture ice cream dripping down a cone. Say "double dip" this July, and the vision isn't as sweet.

A day before the national jobs report for June, a series of economic indicators and polls released Thursday described a wobbly economic recovery that threatens to slip back into recession.

The outlook is fueled by both facts and attitudes.

Construction spending, home sales, manufacturing activity, vehicle sales and new claims for jobless benefits all posted disappointing numbers.

But what former Federal Reserve Chairman Alan Greenspan on Thursday called a "short-term fear factor" may be forming the economic forecast as well.

Whether spooked by financial problems in Europe, a fuzzy outlook for health care reform, uncertain tax increases or stock market sluggishness, businesses aren't hiring or ramping up investments.

Investor doubts were reflected in six straight days of lower prices on the New York Stock Exchange. The Dow Jones Industrial average had its lowest close Thursday since October, having fallen 10 percent in the second quarter. The S&P 500 index fell 11.9 percent in the quarter.

"People don't want to hire because they're concerned they may have to let them go," Greenspan said on a CNBC television interview.

And, as the ranks of the unemployed remain high, consumer spending is cautious, personal savings rates have risen and money isn't flowing into the economy.

The National Bureau of Economic Research, the official arbiter of when recessions start or stop, hasn't yet said whether the recession that began in 2007 is over. Typically, the bureau waits until all data revisions are in before pinpointing a turnaround month.

Read the full story on KansasCity.com

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