General DynamicsIn something approaching English, Greenspan laid out his thesis early in the speech. "Despite the disruptions engendered by the terrorist attacks of Sept. 11, the typical dynamics of the business cycle have re-emerged and are prompting a firming in economic activity," he said. "An array of influences unique to this business cycle, however, seems likely to moderate the speed of the anticipated recovery."
Dow rises as Greenspan speaks
Thanks to the sharp reduction in inventories, said Greenspan, the economy appears to be on the cusp of a rebound. Inventory reduction detracts from the economy, because companies slow down production while they sell off excess goods. Once inventories have been cut bare (and in most recessions companies end up cutting by too much), production picks up again. "That rise in production will, other things being equal, increase household income and spending," said Greenspan. But the forces that typically carry the recovery past that first, inventory-related boost may be muted, Greenspan worried. For one thing, consumer spending remained strong through the downturn, whereas in the typical recession it gets heavily dented. That provided the economy with a "stabilizing force," said Greenspan, but it also means that it won't contribute the kind of lift that it usually does in recovery.