As the year progresses, the economic implications of the enormous century-date computer changeover effort will loom large, even if major problems do not emerge, according to several economists.
Both businesses and consumers are expected to stockpile extra quantities of certain goods against the prospect, remote or not, of computer-related delays and shortages. This inventory building is expected to contribute to economic growth in the fourth quarter.
So, of course, will the expenses of hardware, software, and technical expertise deployed in the final runup to Jan. 1, when some fear serious business disruptions if computerized data systems cannot negotiate the switch.
The date change is also likely to affect Federal Reserve monetary policy. Economists generally think the central bank will compress any rate hikes it deems necessary into its next two policy meetings, on Tuesday and Oct. 5.
That would leave the Fed in a position to cope with any Y2K problem by adding liquidity if necessary.
The flip side of the Y2K effect could begin to appear next January. Any business disruption would hurt economic performance, and even if there are no interruptions, the draw-down of inventory and slackening of technology spending would dampen results.
"Defensive stockpiling" will be the biggest factor, predicted William Dudley, chief economist at Goldman, Sachs & Co. in New York. "Even a modest buildup of precautionary stocks would push growth in the fourth quarter about 1 percentage point above the underlying trend and then take an even bigger bite out of the first quarter."
"The Y2K scenario is based on uncertainty, and that can be a boost to the economy in the fourth quarter as prudent companies build inventories,'' said veteran Wall Street economist Philip Braverman. "Then we will either live off those inventories or discover we have inventoried the wrong things."
There are, to be sure, starkly different scenarios about the economic impact of the year-2000 switch.
"I do not believe there will be any significant problems stemming from Y2K," said Robert Genetski of Chicago Capital Inc. "If problems do appear, the Fed would make money readily available in order to limit the nature of any disruption. Life will go on."
Mr. Dudley said it is reasonable to think of Y2K as akin to a natural disaster, like a hurricane, earthquake, or flood.
Such events "typically disrupt output for a short period and destroy part of the nation's capital stock." But damage to or loss of business facilities or public infrastructure is not counted as negative economic output, he stressed. Moreover, in the wake of such events, economic growth usually accelerates as losses are made up.
Considerably less sanguine is Edward Yardeni, chief economist at Detusche Banc Alex Brown Inc., who has studied the issue extensively. He sticks to his prediction of a Y2K-induced economic recession next year.
In a recent report titled "Y2K: Eyes Wide Shut" he expressed frustration at the meager information available on potential Y2K-related data system problems, on efforts being made to fix them, or on contingency plans.
He also rejected the natural disaster analogy. "Natural disasters are random and geographically localized events. Y2K is potentially a systemic, worldwide event," he said. "I think it is a big mistake to plan for the best rather than for plausible worst-case scenarios."
Mr. Yardeni endorsed the assessment of Jacquelyn L. Williams-Bridgers, the State Department's inspector general. She recently told Congress that "the global community is likely to experience varying degrees of Y2K-related failures in every sector, in every region, and at every economic level."
The risk of disruption, she said, "will likely extend to the international trade arena, where a breakdown in any part of the global supply chain would have a serious impact on the U.S. and world economies." She urged contingency planning against these risks.
Mr. Yardeni has been holding regular Internet conferences with Y2K experts on the potential problems. Next up is his "T-100 Days" Internet conference on Sept. 23, which will be accessible at www.y2kactionday.com.
