Big week ahead for economy

Will Fed action and corporate 'clean-books' pledges help avert a 'double dip'?

Amid one of the slowest recoveries of the postwar era, three events this week could revive the spirits of vital players in the current economy: investors and consumers.

Tuesday Federal Reserve policymakers meet, and they might again trim interest rates – already at a 40-year low.

The same day, President Bush hosts an economic-revival forum in Texas. While the event is seen as mainly political, the prospect of further stimulus from government, such as tax cuts, will likely come up.

Then, on Wednesday, the top officers of about 700 major corporations face a deadline to vouch for the purity of their financial statements. This could flush out new accounting surprises, or it might reassure investors that the worst is behind.

Given concerns about the possibility of a "double-dip" recession, even a psychological boost from these events would help.

"The economy is fundamentally sound.... But it certainly is a slow recovery, even slower than that of 1991-92," says David Wyss, chief economist at Standard & Poor's in New York.

Such a slow recovery does not create enough jobs to shrink the unemployment rate, now at 5.9 percent.

Most economists expect the recovery to continue into the fall. But they also see obstacles, notably high levels of consumer and business debt. Some shoppers are getting fresh spending money by refinancing their home mortgages. But in a new survey, many say that stock market losses have dampened their willingness to spend on credit.

Fed meeting

Against that backdrop, the Federal Reserve is attracting more attention than Mr. Bush's economic forum or executives waving what amount to "good accounting seals of approval."

Many economists expect the Fed to leave interest rates unchanged, but to take special note of the economic weakness – indicating a willingness to use its rate-cut ammunition in September if needed. Such a signal could be enough to satisfy investors who expect monetary easing. Last week, hopes of a rate cut helped the Dow Jones Industrial Average rise for four straight days.

Bush's forum, at Baylor University in Waco, a half-hour drive from his Crawford ranch, likely has more political than economic significance. It will include seminars and speeches focused on reviving the economy. With the fall elections nearing, a key message will be that the president is concerned about economic malaise and angry at corporate malfeasance

"Politically useful," says Mr. Wyss. "Economically, probably not." Giving speeches isn't how you make better economic policy.

Economists at Goldman Sachs & Co. in New York speculate that the Bush team might float some trial balloons about fresh or accelerated tax cuts to stimulate the economy.

Certifying big-company books

The Securities and Exchange Commission (SEC) requirement that chief executive officers certify their companies' accounts aims at calming investors worried by a tide of earnings revisions.

Last Thursday, for instance, WorldCom said it had uncovered a further $3.3 billion in improperly accounted earnings on top of the $3.8 billion of accounting irregularities that shook the stock market severely earlier.

The new SEC regulation has boosted the level of anxiety in corporate corner offices. Some CEOs are insisting that lower company officials also certify the books of their operations – a demand that might offer some protection to the CEO against lawsuits should the books later prove flawed.

Investors are watching closely for any new restatements of corporate earnings, and sharply punishing the stocks of companies that even hint of accounting trouble.

For instance, Interpublic, the advertising group, suffered a 24 percent drop in its stock last week after delaying its second-quarter earnings report by a week.

Other risks for economy

Aside from accounting concerns, a number of risks leave Americans uneasy. There's the Israel-Palestine turmoil, the possibility of a war with Iraq, a concern about oil prices, and the decline in stock-market prices.

"It you are not nervous, you are not paying attention," says Wyss of Standard & Poor's.

There is still considerable worry that the economy could dip into a second recession.

A survey early this month of more than 1,000 adults for the Cambridge Credit Counseling Corp. found that 43 percent of Americans are less willing to incur more credit-card debt because of heavy losses in the value of their stock portfolios.

Banks, meanwhile, are less eager to lend to businesses. The most recent Fed survey of commercial banks showed that 67 percent had tightened commercial-loan standards in response to the slow economy.

Recent economic reports have sent mixed signals.

Gross domestic product grew at a flabby pace in the April-to-June quarter. But car sales are lively. Wholesale inventories grew in June at their fastest pace in 19 months. This was seen as a sign that companies were eager, at that time, to rebuild depleted stocks to keep pace with demand.

Looking at the balance of data, Brian Wesbury, chief economist of Griffin, Kubik, Stephens & Thompson in Chicago, comments, "Fuhgetabout any more Fed rate cuts."

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