Greenspan Detects Turning Point in Recession

Alan Greenspan yesterday hailed America's ability to bounce back from adversity when he told Congress that the economy was on the point of breaking free from recession less than six months after the September 11 terrorist attacks.

The Federal Reserve chairman said the world's biggest economy was "close to a turning point" - but held out the prospect that the central bank was in no hurry to reverse the deep cuts in interest rates of last autumn by warning that the recovery would be slow.

Wall Street rallied on the twice-yearly testimony to Congress on the state of the economy, helping the Dow Jones industrial index climb 130 points by noon.

Mr Greenspan said the recuperative powers of the economy had been remarkable. "In the past several months, increasing signs have emerged that some of the forces that have been restraining the economy over the past year are starting to diminish and that [economic] activity is beginning to firm," he said.

Mr Greenspan warned that the growth of new economy companies like Enron that traded in "concepts" rather than physical goods carried dangers. "A firm is inherently fragile if its value emanates from conceptual, as distinct from physical, assets. Trust and reputation can vanish overnight. A factory cannot."

Enron's bankruptcy would ultimately prove positive. "We will look back on this as a period when we put our corporate governance back on track which would not have happened without Enron - so that is favourable."

Signs for encouragement included a solid advancement in consumer spending and a marked slowdown in job losses last month, Mr Greenspan said.

There were still "cross currents" to give reason for caution. Consumer spending was steady, suggesting no rapid growth from pent-up demand.

He also cited increasing household debt and lower net worth in the wealthiest households because of the stock market decline. The recovery of corporate investment was also only likely to be gradual, particularly in hi-tech areas with a glut of capacity.