[Congressional Record (Bound Edition), Volume 147 (2001), Part 5]
[Senate]
[Pages 7167-7171]
[From the U.S. Government Publishing Office, www.gpo.gov]



                              THE ECONOMY

  Mr. GRAHAM. Mr. President, we have been receiving a disturbingly 
consistent and an increasingly high volume of bad economic news. Even 
what appeared to be good news at its base is bad news.
  In today's Washington Post, is an article--and I ask unanimous 
consent that this and the other articles to which I will refer be 
printed in the Record immediately after my remarks.
  The ACTING PRESIDENT pro tempore. Without objection, it is so 
ordered.
  (See exhibit 1.)
  Mr. GRAHAM. There was considerable enthusiasm a couple of weeks ago 
when the Federal Reserve Board reduced interest rates for short-term 
interbank borrowings by .5 percent. Today, we learn why the Federal 
Reserve Board acted in that manner in an unusual format between its 
regularly scheduled meetings.
  The background is that the Federal Reserve Board Chairman, Alan 
Greenspan, had, for weeks, directed the Federal Reserve staff to 
closely track company earnings announcements and business executives' 
comments about their plans for such things as capital spending.
  Staff members have been working the phones, asking companies specific 
questions about their future intentions. What the Federal officials and 
the staff found out by early April was a disturbingly sour attitude 
among corporate executives, suggesting that many of them were hunkering 
down, concentrating on cutting costs and slashing investment plans. The 
policy planners concluded that quick Federal Reserve Board action was 
needed to try to break the psychological mindset lest it undermine the 
drag we pick up in economic growth later this year. Many Federal 
officials are hoping there will be a turnaround and that this action 
was necessary in order to turn that hope into reality.
  Unfortunately, today we have received some additional bad economic 
news. To quote from the report of the New York Times:

       The Nation's unemployment rate shot up by 4.5 percent in 
     April, the highest level in 2.5 years. Businesses slashed 
     their payrolls by the largest amount since the recession of 
     1991.

  The Labor Department report of Friday--today--was the freshest 
evidence that the economy, which started to slow in the second half of 
the last year, continues to weaken. The increase of .2 percentage 
points in the unemployment rate marks the second straight month the 
jobless rate had gone up. In March, it had ticked up by 4.3 percent. 
April's rate was the highest since October of 1998 when unemployment 
also stood at 4.5 percent.
  Similar reports are in today's online news reports from USA Today, 
the Washington Post, all of which I have submitted for the Record.
  Nobody likes to talk about bad news. I think what we need to be 
talking about now is common sense.
  What are likely to be the consequences of this accumulation of bad 
news? I am afraid the consequences will include a further assault upon 
consumer confidence, which has already declined precipitously, and a 
further assault on the willingness of consumers to undertake serious 
expenditures. We know that about two-thirds of our economy is 
predicated on consumer spending. As the willingness of consumers to 
spend is undermined by the kind of bad news they received this morning, 
that will have an immediate and significant adverse effect on our 
economy.
  How have we been reacting--we Members of Congress and the new 
administration--to this bad news? In my judgment, we have been 
responding inadequately. We have been responding based on a denial of 
the changes that are occurring in our economy and an unwarranted 
commitment to pursue the ideas that were the product of a different 
economic era.
  I believe we should be seriously looking--not only looking but 
acting--to provide new levels of economic assurance to the American 
people and the economic capability to take advantage of that 
reassurance. We should immediately institute a tax stimulus designed to 
encourage consumers to increase their spending and, therefore, begin to 
counter the softening consumer demand in our economy.
  Unfortunately, the tax stimulus has been the stepchild of tax policy. 
Why has it been the stepchild? I think, first, it has been the 
stepchild because there has been an undue commitment to policies that 
were developed in another time.
  I remember a statement made by President Bush, which was a statement 
made to indicate his constancy, his degree of unwavering support, for 
his $1.6 trillion tax plan. That statement started with the fact that 
the President indicated when he first announced his tax plan during the 
winter of 1999, in preparation for the 2000 Iowa caucus, that he first 
proclaimed his commitment to a $1.6 trillion plan and that commitment 
had continued throughout the Republican primary process, the Republican 
Convention, and the general election, and has continued until that date 
in February of 2001.
  What has happened is that while the plan has continued to be the same 
from the winter of 1999 to the now almost summer of 2001, the economic 
stage has changed. Stagehands have come on the stage and removed the 
booming stock market, which in the winter of 1999 was giving us almost 
daily new highs in stock market prices. The stagehands have also 
removed what was almost an all-time low in unemployment and replaced it 
with the unemployment circumstance we find today, which is 4.5-percent 
unemployment, up three-tenths in just the last 60 days. We also have 
replaced the gross domestic product, which had been running at rates of 
5 or 6 percent, with one in which we now are approaching an anemic 2-
percent growth rate in our GDP.
  The second stage, which began in the late winter of this year, was 
that at least we started with the rhetoric that we were interested in 
tax stimulus, but

[[Page 7168]]

no change in the tax plan. We were saying the same plan that had been 
developed in the winter of 1999, which was defined as a plan to give a 
rebate, refund, to the American people for excessive taxes--that the 
same plan now was relabeled as being a tax stimulus.
  There was a glimmer of hope. That glimmer of hope occurred just 
within the last few days when we heard that the conference committee 
that was working on the melding of the House and Senate budget 
resolutions was proposing that there be a $100 million tax stimulus and 
that that tax stimulus was to start immediately. That glimmer of hope 
was quickly shattered, because now we see that in the conference report 
on the budget resolution, there is no $100 billion for a tax stimulus--
the $100 billion was folded into the $1.25 billion overall tax cut. A 
tax cut of $1.25 trillion over 10 years has now absorbed the $100 
billion that was supposed to be the tax stimulus and has grown. So we 
have a tax reduction proposal in the budget resolution of $1.37 
billion, but no specific tax stimulus.
  Another source of disappointment is that in the budget resolution 
that passed the Senate, we were talking about two tax bills between now 
and October 1. There would be one in mid-May and another one prior to 
September 30. That raised the hope, and there was some public comment 
that that first tax bill would be the tax stimulus bill; it would be 
the means by which we would respond rather than passively observe that 
accumulation of very troubling economic news. That, too, has now been 
eliminated in that the budget resolution apparently will only call for 
a single tax bill. It is being suggested that tax bill should be 
basically the winter of 1999 tax bill with minor modifications.
  I am discouraged and disappointed at the current state of affairs, 
but I am hopeful there will be a new day. Maybe that hope can be found 
in the fact that we learned late last night that the conference report 
on which the House was supposed to have voted and which we were 
assumedly going to be debating some today and again on Monday and vote 
on Tuesday was deficient; that there were, in fact, two pages of the 
conference report that were mysteriously missing.
  The hope is those two pages are the two pages that contain some 
commitment toward an intelligent tax stimulative policy. If that is not 
the case, then it is incumbent on us to come to our senses and to take 
constructive action before it is too late.
  I analogize the situation we are in to a business which has just 
learned there is going to be built in close proximity a gasoline tank 
farm. The business owner is looking at his insurance policy and asking 
the question: Given the fact that I am now going to have a heightened 
risk of a fire in the neighborhood in which my business is located, 
would it not be prudent to acquire some additional fire insurance?
  We are getting the message that there is additional vulnerability in 
our economic neighborhood, and would it not be prudent under these 
circumstances for us to buy some additional insurance, an insurance 
policy against recession or an insurance policy against a deepened, 
prolonged recession?
  I believe, just like the business person, yes, it would be prudent 
for us to do so. I suggest in doing so we should reexamine the proposal 
that will soon be before us and say, first, it is not prudent to be 
attempting to pass one gigantic tax bill, most of which benefits do not 
occur until 5 years from now; rather, what we should be doing is 
passing immediately an economic stimulus tax bill which will deal with 
the No. 1 economic challenge to this Nation and most of our people, and 
that is how to provide some additional economic encouragement and sense 
of hope for Americans at a time of a sliding economy, increasing 
unemployment, and declining gross domestic product.
  I believe that first tax bill we pass should have the following 
characteristics: It should be an immediate tax bill. It should be front 
loaded with substantial benefits available immediately after enactment.
  The President's original tax bill had only $187 million of tax 
benefits in the calendar year 2001. I believe we need to have a 
substantial tax cut of at least $60 billion in 2001 and in each 
successive year. We need to place that tax cut primarily in the hands 
of all American families through a reduction in their withholding tax. 
This would result in the greatest likelihood that tax cut would, in 
fact, be used to stimulate demand.
  This plan needs to be simple. We are about to consider what will be a 
very complicated plan, a plan that will have multiple provisions, most 
of which will not have a significant economic impact until after the 
year 2005.
  I believe we need to have a simple, straightforward plan which will 
have an impact immediately. The proposal Senator Corzine and I have 
developed which we submit as meeting these characteristics will be 
accomplished by taking a recommendation of President Bush, which is 
that we add a new bracket to our income tax code, and that be a bracket 
at the 10-percent level--that the first taxable dollars earned by 
Americans would be at a 10-percent rather than a 15-percent level.
  The President's suggestion should be modified in two regards. First, 
the 10-percent bracket, as he has suggested it, will not go into full 
effect until the year 2006. We suggest it ought to be in full effect as 
of January 1, 2001.
  Second, his proposal is limited to the first $6,000 of earnings for 
an individual and the first $12,000 for a married couple. We increase 
those numbers to $9,500 for an individual and $19,000 for a married 
couple. The effect of that is to provide a $60 billion tax stimulus 
reflected through reductions in withholding taxes and immediately 
available to the American people.
  We offer this as a commonsense solution to a very serious and 
disturbing set of economic changes that are occurring. We offer this as 
a means of providing to the American people the kind of support the 
Federal Government can and should be providing at this time. We offer 
it as a statement that we are not so disconnected from the lives of 
Americans that we are unable to appreciate the anxiety which many of 
our fellow citizens are suffering and the opportunity we have to 
provide a constructive and immediate source of relief.
  I suggest that we, the Members of Congress, are about to be tested. 
Are we isolated, stuck on some plan that is now almost 2 years out of 
date, or are we engaged with the American people; that we appreciate 
the implications of the declining economy to their lives, and we are 
prepared to act in a way that will give them the confidence that will, 
in turn, be beneficial to all Americans because it is their confidence 
converted into actions in the marketplace which have the best chance of 
beginning to place some concrete under our economy and begin to lift us 
out of this series of declines.
  We are going to be tested. Next week is going to be the testing date. 
I hope this Congress will receive positive grades on the report card we 
are going to be issued because if we fail to do so, and if that tank 
farm of declining economic statistics explodes this summer or fall, the 
question is going to be asked of us: What did you do when you had the 
opportunity to buy an economic insurance policy to help avoid this 
consequence? We do not want to say we were blind and deaf to the 
circumstances of the American people and failed to act.
  I hope this news, as disappointing and distressing as it is, will 
serve as a shock signal to this Congress to act and next week we will 
show that we have heard the alarm.
  I thank the Chair.

                             Exhibit No. 1

                [From the Washington Post, May 4, 2001]

                  Fed's Legwork Led to Quick Rate Cut


                  firms surveyed before april surprise

                           (By John M. Berry)

       When Federal Reserve policymakers surprise financial 
     markets with an unexpected change in interest rates, 
     investors and analysts often wonder, ``What do they know that 
     we don't?'' Usually, the answer is nothing.
       But when the Fed caught the markets off guard on April 18 
     with a half-percentage-point reduction in short-term interest 
     rates,

[[Page 7169]]

     Fed Chairman Alan Greenspan and other central bank officials 
     did have some vital, privately gathered information that 
     convinced them an immediate rate cut was needed.
       The chairman had expressed concern earlier this year that 
     businesses, worried about falling profits in a sluggish 
     economy, might cut their spending on new plants and equipment 
     so much that they would prolong the slump and forestall an 
     eventual rebound in growth. Anecdotal evidence reaching the 
     Fed suggested that could be the case.
       To get a better reading, Greenspan had for weeks directed 
     Fed staff to closely track company earnings announcements and 
     business executives' comments about their plans for such 
     capital spending. Some staff members also had been working 
     the phones, asking companies specific questions about their 
     spending plans.
       What Fed officials and the staff found by early April was a 
     disturbingly sour attitude among corporate executives that 
     suggested many of them were hunkering down, concentrating on 
     cutting costs and slashing investment plans. The policymakers 
     concluded that quick Fed action was needed to try to break 
     that psychological mind-set lest it undermine the gradual 
     pickup in economic growth later this year that many Fed 
     officials expect. And the officials decided they could not 
     wait until their next regular meeting, scheduled for May 15.
       So on April 18, Greenspan convened an 8:30 a.m. conference-
     call meeting of the Federal Open Market Committee, the Fed's 
     top policymaking group. That group lowered the Fed's target 
     for overnight interest rates by half a percentage point, to 
     4.5 percent. In a separate action, the Fed board reduced the 
     discount rate, the interest rate financial institutions pay 
     when they borrow directly from one of the Fed's 12 regional 
     reserve banks, by the same half-point.
       This picture emerges from interviews with sources who spoke 
     on the condition of anonymity, Wall Street analysts and 
     public comments by several Fed officials.
       The Fed's moves surprised financial markets, for two 
     reasons.
       First, the most recently published economic statistics 
     suggested that, while the U.S. economy was still weak, some 
     sectors had begun to improve. Some private forecasters had 
     even begun to revise their predictions for growth upward 
     modestly.
       Second, several presidents of the regional Fed banks had 
     made recent speeches noting the signs of improvement, which 
     the markets interpreted as suggesting that urgent action on 
     rates was not needed.
       For some investors and analysts, the clincher came from 
     William Poole, president of the St. Louis Federal Reserve 
     Bank, on April 10. After a speech in Dyersburg, Tenn., Poole 
     told reporters that the Fed's target for overnight rates 
     should be changed only at the FOMC's eight regularly 
     scheduled meetings each year, except in ``compelling'' 
     circumstances.
       ``There are compelling times when quick action is 
     necessary, but this is not one of them,'' Poole asserted.
       Remarks the same day in a speech by Jack Guynn, Poole's 
     counterpart at the Atlanta Federal Reserve Bank, also implied 
     a desire to act at regularly scheduled meetings rather than 
     at other times. And two weeks earlier, Anthony Santomero, 
     president of the Philadelphia Fed, had said, ``I do not think 
     the Fed should routinely take policy actions for the sole 
     purpose of boosting expectations or merely to affect 
     confidence.''
       A few weeks earlier, at its March 20 meeting, the FOMC had 
     cut its rate target by half a point and hinted clearly that 
     it might cut rates again if necessary before the May meeting. 
     In the statement, the committee said that, given the weak and 
     uncertain economic outlook, ``when the economic situation 
     could be evolving rapidly, the Federal Reserve will need to 
     monitor developments closely.''
       The FOMC had used similar wording in an announcement after 
     its mid-December meeting, intending to signal that it would 
     consider making a rate cut before its next regular meeting. 
     But more market participants did not pick up that signal and 
     were therefore very surprised when the Fed lowered its rate 
     target by half a point on Jan. 3. The reappearance of that 
     language in March initially convinced many investors and 
     analysts that another reduction was likely during the long 
     eight-week period between the March and May meetings.
       But as April wore on, and the tone of new economic data 
     improved a bit and some Fed officials suggested no Fed action 
     was in the offering, market expectations for a rate cut 
     evaporated.
       So when the Fed moved on April 18, some analysts concluded 
     that Fed officials must have decided that a rate cut would 
     have a greater impact if it came as a surprise to investors 
     and business executives. If that were the case, then the 
     president's remarks must have been part of a coordinated plan 
     intended to mislead market participants, the analysts said.
       To most Fed officials, the notion of coordinating 
     statements of all the policymakers is almost laughable. 
     Public statements by one policymaker or another often leave 
     others in the group shaking their heads. That clearly was the 
     case when Poole so specifically ruled out an inter-meeting 
     move.
       Furthermore, historically there has always been a certain 
     tension between Fed officials in Washington and the 12 
     Federal Reserve Bank presidents scattered across the country. 
     Some of that tension has involved issues of who has what 
     powers within the system, which is largely dominated by the 
     chairman.
       The bank presidents carefully guard their limited 
     independence, even to the point of rarely conferring with one 
     another on monetary policy outside of formal meetings. Some 
     of the presidents do send drafts of the speeches to 
     Washington, where the Fed board and staff read them and may 
     make some suggestions for changes. But there is no attempt to 
     coordinate statements and the presidents are free to ignore 
     suggestions.
       This geographic separation contrasts with the weekly Fed 
     board meeting in Washington, usually on Monday mornings, at 
     which reports on the state of the economy are presented by 
     the staff and discussed by the board members. Fed officials 
     would not discuss the extent to which the reserve banks' 
     presidents were apprised of the board staff's findings as it 
     gathered up details of corporate announcements and made 
     telephone inquiries about business investment plans.
       Nor has there been any public indication of whether there 
     were any dissents registered during the April 18 conference 
     call. The minutes of that meeting, along with those from the 
     preceding regular FOMC session March 20, will be released two 
     days after the upcoming May 15 meeting.
       The Fed's announcement following last month's unexpected 
     rate cut highlighted the policymakers' concerns about 
     business attitudes and spending plans, and mentioned other 
     uncertainties about consumer spending and the demand for U.S. 
     exports. After noting some of the same positive economic 
     signs the bank presidents had mentioned in their speeches, 
     the FOMC said:
       ``Nonetheless, capital investment has continued to soften 
     and the persistent erosion in current and expected 
     profitability, in combination with rising uncertainty about 
     the business outlook, seems poised to dampen capital spending 
     going forward. This potential restraint, together with the 
     possible effects of earlier reductions in equity wealth on 
     consumption and the risk of slower growth abroad, threatens 
     to keep the pace of economic activity unacceptably weak. As a 
     consequence, the committee agreed that an adjustment in the 
     stance of policy is warranted during this extending 
     intermeeting period.''
       In addition to economic worries, the condition of the stock 
     market likely helps explain some of the timing of the April 
     rate cut.
       While Greenspan and other Fed officials maintain they are 
     not in the business of targeting stock prices, they readily 
     acknowledge that the market can have a significant impact on 
     the economy and that does concern them. For example, the 
     weakness in the stock market over the past year is a factor 
     in business investment decisions because the market can be a 
     source of inexpensive funding for new plants and equipment.
       But if investors were still driving stock prices downward--
     as appeared to be the case until the first part of April--a 
     surprise rate cut might have had little impact on the market. 
     Like an intervention in foreign exchange markets to affect 
     the value of a currency, officials felt it would be better to 
     wait until the market appeared to have hit bottom and was on 
     its way up.
       As the market began to improve during the week before the 
     rate cut, another factor came into play--Easter. The market 
     was to be closed on Friday, April 13, and was to close early 
     the day before, and under such circumstances trading volume 
     is usually low. So if one goal, likely a subsidiary one, was 
     to give the market a boost, the following week was probably a 
     better bet.
       Now, of course, attention has turned to what the Fed will 
     do May 15. Most analysts expect a further reduction in the 
     target for overnight rates, by either a quarter of a point or 
     a half-point. The latter would bring the rate target down to 
     4 percent, it lowest in seven years.
       Some analysts think the Fed will stop at 4 percent, whether 
     it gets there in one step or two. That could well be the case 
     since a significant member of Fed officials believe economic 
     growth will gradually improve in the second half of the year, 
     though they generally stress the uncertainty of the outlook. 
     A smaller group of analysts thinks the economy will prove 
     stubbornly weak and that the target for overnight rates will 
     bottom out at 3.5 percent.
       But with rates as low as they are likely to be after May 15 
     and only six weeks until the subsequent FOMC meeting in late 
     June, a third surprise rate reduction between meetings this 
     year can be only a very remote possibility.
                                  ____


                [From the Washington Post, May 4, 2001]

                      Wall Street Feels Labor Pain

                      (By Jessica Doyle Belvedere)

       The government released fresh evidence this morning the 
     U.S. economy continues to weaken.
       The April employment report handed Wall Street a bag of bad 
     news. The labor market

[[Page 7170]]

     showed the steepest job losses in over a decade as the 
     unemployment rate vaulted to a high not seen since October 
     1998.
       Non-farm payroll jobs plunged 223,000, rebuffing 
     expectations of a gain of 21,000 and pushing the unemployment 
     rate to 4.5 percent, up from 4.3 percent in March. That is 
     the highest jobless rate since October 1998 and higher than 
     the consensus 4.4 percent forecast. Meanwhile, average hourly 
     earnings rose 0.4 percent.
       Manufacturing was the hardest hit sector of the economy, as 
     employment fell 104,000 in the ninth consecutive monthly 
     decline and the largest since August. The report also showed 
     that job losses were widespread. However retail and 
     government operations added to their payrolls.
       Wall Street is particularly tuned into this morning's 
     report since the labor market is a key driver of consumer 
     confidence, which in turn impacts spending patterns. With the 
     economy weakening since last summer, consumers may curtail 
     spending, which accounts for two-thirds of economic activity. 
     Thus far, consumer spending has been resilient and helped to 
     buoy the overall economy.
       The report also raises the stakes that the Federal Reserve 
     will make another aggressive interest rate cut later this 
     month. The Fed has acted four times this year to stimulate 
     the flagging economy.
       Gerald D. Cohen, Senior Economist at Merrill Lynch believes 
     the Fed will cut rates by 50 basis points at its May 15th, 
     and by August fed funds will stand at 3.5 percent. ``We still 
     don't think the economy is going into recession. Spending has 
     softened but it will be ok. The Fed will help spur growth 
     when the rate hikes come on line. And enough sectors are 
     holding up that they will keep the economy from slipping into 
     a recession.''
       Wall Street is bearing the brunt of the weaker-than-
     expected reading. As of 9:50 a.m. EDT, the Dow Jones 
     industrial average had fallen 104 points or nearly 1 percent. 
     Meanwhile, the Nasdaq dropped 48 points, or 2.19 percent, 
     after losing 3.4 percent on Thursday.
       The drumbeat of anemic labor data continued Thursday, 
     prompting investors to question the odds of an economic 
     rebound, and therefore an earnings rebound in the latter half 
     of the year.
       Thursday's report on the labor market showed new claims for 
     unemployment benefits rose by 9,000 to 421,000 for the week 
     of April 28. The report's 4-week moving average, with 
     smoothes out statistical blips, rose to 405,000, the highest 
     level of unemployment claims since October 1992. 
     Additionally, a job-placement firm that tracks layoffs 
     reported that businesses in April announced plans to 
     eliminate 165,600 jobs, a record in the survey's 8-year 
     history.
       Another economic indicator proved troubling to investors. 
     The non-manufacturing portion of National Association of 
     Purchasing Management's monthly report fell to a reading of 
     47.1 percent in April from 50.3 percent in March. Any reading 
     below the 50 percent benchmark signals economic contraction, 
     and the gauge indicated that the economic downturn may be 
     broadening.
                                  ____


              [From the Wall Street Journal, May 3, 2001]

                Fed Finds Slowdown Is Widespread in U.S.

                              (By Greg Ip)

       WASHINGTON.--Despite a flurry of upbeat news, the economy's 
     worst days may not be behind it after all.
       The Federal Reserve's latest report on regional economic 
     conditions offered little evidence that the slowdown is over. 
     ``Almost all districts report a slow pace of economic 
     activity in March and early April,'' the Fed said yesterday. 
     ``Labor-market tightness has eased in almost every 
     district.''
       The report, known as the beige book, summarizes economic 
     conditions in the 12 Federal Reserve districts and is used by 
     policy makers to determine monetary policy. the policy makers 
     meet next on May 15.
       To be sure, much of the news lately has been positive. The 
     economy grew at a 2% annual rate in the first quarter, double 
     expectations; in April, stocks had one of their best months 
     in years; and the latest signs from manufacturing suggest the 
     sector is bottoming out. Yesterday, the Commerce Department 
     said factory orders rose 1.8% in March from February, 
     seasonally adjusted, thanks mostly to transportation.
       On closer inspection, however, the picture is less 
     comforting. While consumer spending was surprisingly 
     resilient in the first quarter, it weakened as the quarter 
     progressed. In March and April, a key variable in the 
     spending equation--employment--worsened.
       Last Friday's report on first-quarter gross domestic 
     product ``is telling you what's going on outside your window 
     over the past few months. It's not a good leading 
     indicator,'' said Lakshman Achuthan, managing director at the 
     Economic Cycle Research Institute in New York. By contrast, 
     initial claims for unemployment insurance ``are going the 
     wrong way fast,'' he said. Claims topped 400,000 in late 
     April, the highest in five years and up 44% from a year 
     earlier.
       Mr. Achuthan noted that while the National Association of 
     Purchasing Management's index of manufacturing activity rose 
     a touch in April from March, the employment portion fell. 
     That suggests job cuts are broadening.
       Yesterday's Fed report said that retail sales, after 
     weakening in March, picked up in April. But this may have 
     been due to ``Eastern sales and better weather,'' according 
     to businesses in the Dallas district. The beige book found 
     housing demand remained firm, but auto sales were more mixed, 
     ``Almost across the board . . . districts note that higher 
     gas prices appear to have reduced demand for new SUVs, luxury 
     vehicles and trucks.''
       In the St. Louis district, layoffs have hit both the Old 
     and New Economy alike: steel, timber, electronics, plastics 
     and high-tech companies. In the Boston district, discount 
     retailers said that ``demand has softened because their 
     lower-income customers are facing a fuel-price squeeze.''
       Still, the fact the economy grew as much as it did in the 
     first quarter does suggest improved prospects for avoiding a 
     recession, which is often defined as two consecutive quarters 
     of declining GDP.
       ``Much of the inventory correction is behind us, as the 
     ratio of real inventories to private final sales has now 
     fallen back to the level of the first half of the last 
     year,'' noted forecasting firm Marcoeconomic Advisers LLC of 
     St. Louis, which said it is more comfortable with its 
     relatively upbeat forecast. It also cited a number of 
     positives: The Fed cut interest rates half a percentage point 
     April 18; stocks are recovering; and a tax cut is more 
     likely.
       Federal Reserve Bank of San Francisco President Robert 
     Parry said yesterday that he ``seriously doubts'' that the 
     nation's economy will plunge into a recession, given the 
     Fed's four rapid and aggressive rate cuts this year. 
     Separately, the Federal Reserve Bank of Chicago said its 
     gauge of business activity had improved to a level suggesting 
     the likelihood of recession had fallen.
       The economy has benefited from the fact that consumer 
     spending held up while businesses slashed inventories. 
     Consumer spending may weaken now, but inventory cutting is 
     less likely to compound that. ``Production and demand are 
     kind of weaving around each other, and if you keep getting 
     that you probably won't have a recession,'' said Edward 
     McKelvey, senior economist at Goldman Sachs. ``The bid 
     intellectual battle is more, `How firm a recovery can you 
     expect?' '' Stock and bond markets are anticipating a solid 
     recovery, but ``we think the economy is in for an extended 
     period of sluggishness.''
       One of the factors likely to keep growth anemic is cuts to 
     capital spending. Though business investment in equipment 
     fell less than expected in the first quarter, there is no 
     turnaround in sight. Technology shares have rallied, but more 
     on hopes that the sector has hit bottom than actual signs of 
     increased demand. Semiconductor prices, for example, have 
     actually weakened in recent weeks, suggesting those hopes are 
     premature.


                             factory orders

       Here are the Commerce Department's latest figures for 
     manufacturers in billions of dollars, seasonally adjusted:

------------------------------------------------------------------------
                                         Mar. (p)   Feb. (r)  Percentage
                                           2001       2001       chg.
------------------------------------------------------------------------
All industries........................     370.52     363.83        +1.8
Durable goods.........................     206.29     199.37        +3.5
Nondurable goods......................     164.23     164.47        -0.1
Capital-goods industries..............      72.57      65.70       +10.5
Nondefense............................      61.38      58.87        +4.3
Defense...............................      11.20       6.83       +63.9
Total shipments.......................     366.51     365.05        +0.4
Inventories...........................     490.85     493.70        -0.6
Backlog of orders.....................     597.79     593.78        +0.7
------------------------------------------------------------------------
p--Preliminary. r--Revised.


                                  ____
                 [From the New York Times, May 4, 2001]

                Unemployment Rate Rises to 4.5% in April

       WASHINGTON (AP).--The nation's unemployment rate shot up to 
     4.5 percent in April, the highest level in 2\1/2\ years. 
     Businesses slashed their payrolls by the largest amount since 
     the last recession in 1991.
       The Labor Department report Friday was the freshest 
     evidence that the economy--which started to slow in the 
     second half of the last year--continues to weaken.
       The increase of 0.2 percentage point in the unemployment 
     rate marked the second straight month the jobless rate had 
     gone up. In March, the jobless rate ticked up a notch to 4.3 
     percent. April's rate was the highest since October 1998, 
     when unemployment also stood at 4.5 percent.
       Both the increase in the unemployment rate and the cut in 
     jobs surprised many analysts. They were predicting that the 
     unemployment rate would rise to 4.4 percent and that 
     businesses actually would add jobs during the month.
       Businesses cut their payrolls in April by 223,000 jobs, the 
     largest reduction since February 1991, when payrolls fell by 
     259,000. It was the second month in a row that businesses 
     trimmed their payrolls. In March, payrolls fell by 53,000, 
     according to revised figures, a smaller reduction than the 
     government previously reported.
       In April, job losses were widespread except in retail and 
     government, which added to their payrolls.
       The unemployment numbers follow the Federal Reserve's 
     surprise interest rate cut by one-half point last month--the 
     fourth reduction this year in the Fed's campaign to ward off 
     recession. Analysts have said further rate cuts are likely at 
     the central bank's May 15 meeting.

[[Page 7171]]

       With unemployment expected to continue inching up, some 
     economists worry that consumers might rein in spending and 
     further weaken the struggling economy.
       Consumer spending accounts for two-thirds of all economic 
     activity and has helped buoy the economy during the downturn.
       Some companies are coping by sharply cutting production, 
     leading to reductions in workers' hours and overtime, and 
     forcing thousands of layoffs.
       The New York Times announced this week that it would cut 
     100 jobs after already laying off 100 people at its online 
     unit and offering buyouts to other employees. That followed 
     recent announcements at Morgan Stanley, Honeywell 
     International Inc., LM Ericsson and Texas Instruments Inc.
       Friday's report showed that manufacturing, which has been 
     bearing the brunt of the economic slowdown, continued to 
     hemorrhage, losing a huge 104,000 jobs last month. Declines 
     since June have totaled 554,000 and two-thirds of those job 
     losses have occurred in the past four months.
       Construction, which had been adding jobs over the last 
     several months, lost 64,000 jobs in April. The government 
     said the drop may reflect in part heavy rains over part of 
     the country. The construction and housing businesses have 
     remained healthy during the economic slowdown--a key force in 
     keeping the economy out of recession.
       Business services cut 121,000 jobs in April. Temporary 
     employment services experienced another sharp decline of 
     108,000 last month, and have lost 370,000 jobs since 
     September.
       Seasonal hiring in amusement and recreation services and 
     hotels was well below normal last month, with unemployment 
     declines of 30,000 and 13,000, respectively.
       Average hourly earnings, a key gauge of inflation, rose by 
     0.4 percent in April to $14.22 an hour. That matched the gain 
     in March. The length of the average workweek was unchanged at 
     34.3 hours in April.

  The PRESIDING OFFICER (Mr. Kyl). The Senator from New Hampshire.
  Mr. GREGG. Mr. President, I will speak about the education bill.
  Mr. BYRD. Will the Senator yield?
  Mr. GREGG. I yield to the Senator from West Virginia.
  Mr. BYRD. About how long will the Senator speak, so I know when to 
return.
  Mr. GREGG. I say to the Senator, I will probably speak 15 to 20 
minutes.
  Mr. BYRD. I thank the Senator.

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