Fed May Need to Ease, Not Tighten

Not all economists see the United States growing at a rapid clip.

To Susan Hickok, chief economist at Prudential Economics in Newark, N.J., the danger is substantial slowdown.

She argues that demand for goods and services, far from being too strong, may slow to the point that the Fed will need to ease interest rates later this year to prevent an economic slump.

That's certainly not the common view. Many economists see the present "robust" growth rate of the economy as unsustainable. Total output of goods and services averaged 3.5 percent growth after inflation in the past two years. And in this year's first quarter, gross domestic product rose at a 4.2 percent annual rate.

Unemployment in April shrank to 4.3 percent, the lowest since 1970. A record 64.1 percent of the population age 16 and over is employed.

But Ms. Hickok and colleague Gary Bigg crunched the numbers a little differently in a recent report.

Taking computers out of national demand for goods and services, they find demand has averaged a "subdued" 2.2 percent for the past two years.

Why leave computers out? Because, in measuring national output, the government accounts for technological advances. When the computing power of a personal computer doubles, the Department of Commerce counts real purchases of PCs as having doubled. That, Hickok and Biggs figure, exaggerates growth in terms of the capacity of the economy to avoid overheating.

Commerce statisticians have just provided Hickok with some unpublished numbers taking out computers suggesting that the 2.2 percent growth rate may be a bit low.

"The economy is definitely slowing," she says, with the impact of the Asian crisis only starting to be felt.

Her conclusion: Fed policymakers should "wait for more data."