CONSUMER CONFIDENCE
`A bit brighter’
In an economy based largely on the handling of information, it remains to be seen whether a severe slump in manufacturing can be contained or will spread to other sectors.
At this point, Americans have handled an eight-month skid in factory production, to the slowest pace since 1983, with aplomb.
Many remain upbeat that a one-two punch from lower interest rates and the tax cut will jolt the economy back into the fast lane. Never mind those gloomy reports of layoffs and cutbacks. They are being set aside, for now.
Chicago economist Diane Swonk looks for Tuesday’s report on June consumer confidence from the Conference Board, a business group, to show another gain, from the 115.5 reading a month earlier.
“Consumers still are spending, and we should see a pop of additional buying in the weeks ahead,” said Swonk, of Bank One Corp.
She said there has been a modest improvement in the job market, as the latest week’s claims for unemployment insurance fell noticeably.
In addition, Swonk said, “The stock market has come back a bit. Wall Street is no longer completely in the dumps.
“That is adding to expectations for the future, especially for families that earn more than $50,000 a year. So the outlook for confidence appears a bit brighter.”
FEDERAL RESERVE
Pointed debate
Wednesday is decision time for the Federal Reserve, as members of its Open Market Committee weigh interest rates. Bets are increasing that policy-makers will notch their short-term lending target lower by a half-point, to 3.5 percent.
Economist Tim O’Neill says “it’s a close call, but the odds are slightly better than 50-50 that the Fed will lower rates by 50 basis points, or a half-point.”
However, policy-makers will engage in a strenuous debate, he said, because consumer spending and the housing industry remain strong, while there has been only a modest uptick in joblessness.
“Some members of the Fed will note that there has been a lot of monetary stimulus already, and that the tax cuts are coming,” said O’Neill, of Chicago’s Harris Bank and its parent, Bank of Montreal. “They will express concern that the Fed might overdo it, because, by the end of this year, the economy should be growing robustly.”
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HOME SALES
2 solid stories
Speaking of housing, the industry may bend but it refuses to break. Analysts expect continued strength in this week’s numbers. On Monday, May existing-home sales are expected to show a slight increase from April’s annual rate of 5.2 million units. On Tuesday, new-home sales are expected to top 900,000 units annually, up from 894,000 in April.
EQUITIES
`Steady Eddies’
While investors weigh a torrent of confessions of second-quarter earnings shortfalls, many hold out hope that the flood of liquidity created by the Fed will lift Wall Street’s boats.
Longtime market observer Fred Gordon says, “This is no time for pessimism. Our economy will recover, and so will Japan’s. In the long run, we should see the Dow Jones industrial average move beyond 13,000, 15,000 or even 17,000.”
In the meantime, Gordon said he has been looking for “slow, steady Eddie companies that provide solid earnings at a reasonable price. Looking for such value stocks has proved to be a good strategy over the last three or four months.”