As Americans turn wistful thoughts to spring, they are having a tough time shaking off winter’s gloom. Helping to create the dour mood are record-high heat bills and blackouts afflicting the West Coast. Yet there are signs that the bleak spirit may be lifting. A modest boost was created by a half-point reduction in interest rates by the Federal Reserve on Jan. 3. A chief area of hope: the nation’s job market, still enjoying the best situation in about 30 years. Watch for Friday’s employment report, however, to show a slight uptick in joblessness for January. Chicago economist Robert Dederick is looking for unemployment to grow to 4.1 percent, from 4 percent in December, while payrolls advance by a below-trend 75,000 positions. “The economy is caught in a tug-of-war, between manufacturing, which is in a mild recession, and the service sector, which continues to grow,” said Dederick, a consultant to Northern Trust Corp. Ahead of the jobs report, Fed members will meet on Wednesday, to determine whether to cut interest rates further. “The question for the Fed is how aggressive they must be to ward off an overall recession,” Dederick said. “At this point, it’s a flip of the coin whether they will cut rates by another quarter-point, or will move by a half-point.”
FEDERAL RESERVE
GDP DATA MAY SWAY
More Top Picks Best Whiskey Decanters
As members of the Federal Open Market Committee gather, they will be given a rundown on all manner of economic data. Before their decision, expected early Wednesday afternoon, policymakers will see a report on fourth-quarter gross domestic product. Chicago economist Diane Swonk says the report will show the economy expanded at a rate just above 2 percent, although in the current quarter it has slowed to 1.9 percent. “The economy hasn’t fallen off a cliff. Part of our problem has been a horrible winter,” said Swonk, of Bank One Corp. “Members of the Fed will demonstrate that they are willing to defend economic growth, and they will reduce rates by a quarter-point,” she said. “By the end of this quarter, they will cut rates by another quarter-point.” However, later in the year, she said, “the sun will shine once more, and the economy will reaccelerate. That means, in December, the Fed is likely to do a 180-degree turnaround, and raise rates.”
CONSUMER CONFIDENCE
DEBT SLOWS BUYING
A long list of reports this week includes January consumer confidence on Tuesday, December new-home sales Wednesday, the month’s factory orders Friday and January car and light truck sales Friday. Of the group, watch consumer confidence and car sales, which are in some ways related. Detroit’s business has skidded out of the fast lane, and many consumers are hampered from buying because they already have at least one car payment, as well as credit card debts.
EQUITIES
POST-FED RALLY?
The stock market is waiting for the Fed’s action, as well as the final rollouts of fourth-quarter corporate profits. Once those factors are out of the way, “the path of least resistance is for stocks to go higher over the next month or so,” said Chicago investment manager Marshall Front. “At that point, we could retest the market’s recent lows,” said Front, of Front Barnett Associates. “But such a test should prove of short duration, and it is our belief the markets will see that the economy has managed to skirt a recession.”