Greenspan upbeat on US economy

The financial markets hang on Mr Greenspan's every word

US central bank chief Alan Greenspan has said the economy is emerging from a summer lull despite soaring oil prices.

Mr Greenspan told a Congressional panel that economic growth had "regained some traction" in recent weeks.

He said that business investment and manufacturing output were on the rise, while the pace of new job creation had picked up in August.

Mr Greenspan added that last month's record surge in oil prices had had little impact on inflation.

However, he warned that the US public finances were set to "deteriorate substantially" in the years ahead unless current spending policies changed.

Retirement burden

Mr Greenspan said extra pressure would fall on the public purse as members of the "baby boom" generation reached retirement age and became eligible for subsidised healthcare.

"As a nation, we may have already made promises to coming generations of retirees that we will be unable to fulfil," he said.

On Tuesday, the Congressional Budget Office said the budget deficit - the amount by which government spending exceeds revenues - would reach a record $422bn (£232bn) in the year to 30 September 2004.

It also predicted that annual deficits would grow by more than originally thought over the next decade, partly because of higher defence spending.

Budget deficits force governments to borrow more and reduce their scope for fiscal measures aimed at boosting economic growth.

Beige book

The financial markets, which listen closely to Mr Greenspan's speeches for clues as to future interest rate decisions, did not react to his latest remarks.

The benchmark Dow Jones share index closed 0.28% lower at 10,313, weighed down by negative corporate news.

Mr Greenspan's broadly positive assessment of the US economy tallied with a separate report from the Federal Reserve, the US central bank, which said that economic activity "continued to expand" in late July and August.

However, the so-called beige book - a monthly economic barometer compiled by the Fed's 12 regional banks - said that household spending had softened, while energy and some raw material costs had risen.