Washington, Jan. 21 (Bloomberg) -- Federal Reserve Chairman AlanGreenspan may give investors clues this week about whether and by howmuch he wants to cut interest rates again before the end of the month. Greenspan is scheduled to appear before the Senate Budget Committee onThursday. While his testimony is supposed to be on the federal budget, it willbe his first public assessment of the U.S. economy since persuading his Fedcolleagues to cut their benchmark interest rate at the start of the new year. The Fed cut the overnight bank lending rate a half point to 6 percent in asurprise move Jan. 3, citing ``further weakening of sales and production.''Economists and investors are betting on at least a quarter-point rate reductionat the next meeting of the Fed's policy-setting Open Market Committee onJan. 30-31. ``The economic slowdown has been unexpectedly abrupt and Alan Greenspanand the Fed want to put a cushion under it,'' said Robert Dederick, aneconomic consultant at Chicago's Northern Trust Co. Economic reports this week probably will offer further evidence the economyhas cooled. Orders to manufacturers for durable goods -- such as cars andcomputers -- probably declined 1.5 percent in December, the second drop inthree months, according to a Bloomberg News survey of analysts. TheCommerce Department is scheduled to release that report Friday. Sales of previously owned homes probably fell 3.3 percent in December to aseasonally adjusted annual rate of 5.05 million units, also the second drop inthree months, the analyst survey showed. That report, from the NationalAssociation of Realtors, is set for release Thursday.
Engine Out of Steam
``We have been the engine of growth for the rest of the world for the pastdecade, but now we may be running out of steam,'' said Bill Cheney, chiefeconomist at John Hancock Financial Services Inc. in Boston. Manufacturingproduction, for example, put in its weakest performance since the 1990-1991recession during December, according to Fed statistics. The index of leading economic indicators -- a gauge of growth over the nexthalf year -- probably declined 0.3 percent in December after dropping 0.2percent in November and 0.3 percent in October, analysts said. The LEI, setfor release Tuesday by the New York-based Conference Board, hasn'tregistered an increase since a 0.1 percent gain last March. If the index does drop, it would be the first time it has declined for threestraight months since the period from January to May 1995. Still, that doesn'tnecessarily mean the economy faces a more pronounced slowdown.Following the LEI's stretch of five straight declines in 1995, the economy grew4 percent in the 12-month period that followed.
Jobless Claims
New applications for state unemployment benefits probably resumed theirclimb, analysts said. In the week ended Jan. 20, claims probably increasedby 24,000 to 330,000 for the week, analysts said. Claims fell last week,possibly because of a statistical quirk. And while slower growth is producing some slack in the job market, laborcosts may have increased at a faster pace in the closing months of 2000,analysts said. The employment cost index, contained in a Labor Departmentreport also set for Thursday release, probably rose 1.1 percent in the fourthquarter, up from 0.9 percent in the third quarter. That would translate to a 4.5 percent increase from the fourth quarter of 1999,the largest year-over-year rise since 1991, according Ian Morris, an economistat HSBC Securities. Also on the agenda, the U.S. government -- headed toward its fourth straightfiscal year with a budget surplus -- will probably report a surplus in December.Receipts probably exceeded spending by $32 billion last month, analystssaid. December has produced surpluses in recent years because of year-end taxpayments on mutual fund dividends and capital gains. In December 1999, theTreasury posted a budget surplus of $35.7 billion. The Treasury budgetstatement is due out Monday.