GDP
Where’s rebound?
When Americans ask about an economy that continues to bump along, they get an almost daily litany: The good times lie just ahead. Or at least they will return by the end of the year.
Yet there is a deep yearning for concrete signs of a rebound, as the troubled sectors, especially high-tech, telecom and manufacturing, cast a pall over the economy’s strongholds, namely construction and consumer spending.
Shibboleths about things being darkest just before the dawn won’t wash. Where are the signs of liftoff after a half-dozen interest rate reductions by the Federal Reserve?
Some answers may appear Friday, when the Commerce Department totals up second-quarter gross domestic product. Economist Tim O’Neill is looking for growth at a paltry 0.5 percent annual rate, down from an already weak 1.2 percent rate in the first quarter.
“This report will mark the worst part of the current slowdown, as the rate of expansion is starting to improve,” said O’Neill, of Chicago’s Harris Bank and its parent, Bank of Montreal. He is looking for growth to quickly rev up to a 2.5 percent rate as tax rebates and the Fed’s monetary stimulus kick in.
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“This time last year, growth was extremely buoyant [reported at 5.6 percent], and the Fed was boosting rates aggressively,” O’Neill said. “Since then, we have seen a climbdown in the expansion. But we also are seeing an end to the inventory correction, and activity should pick up from here.”
RATE CUTS
Longing to lend
The Fed’s blunderbuss of interest rate cuts has lost its immediate, explosive impact, and critics complain it is more of a popgun. The next question is whether the central bank will ease monetary policy further at its next meeting.
Chicago banker Kenneth Skopec says “the Fed will cut rates again when policymakers gather” on Aug. 21. And he said members of the Fed are assessing problems facing banking.
“It is getting tougher and tougher to make good quality loans,” said Skopec, president of Mid City Financial Corp., which is merging with MB Financial Inc.
“As long as production is slowing–and there are signs it is down by 10 to 15 percent–businesses will not seek loans for expansion,” Skopec said. Accordingly, banks are being watchful about who can borrow.
HOME SALES
Still hot
When economic storm flags are flying, people traditionally seek a safe harbor in real estate. So it’s no surprise that home prices are holding firm or rising, while construction continues to boom.
There are few signs the trend will reverse in Wednesday’s report on June existing-home sales, or Friday’s report on new-home sales. Resales have been running above a 5.2 million unit annual rate, while new houses are selling beyond 900,000 a year. Last week’s numbers for June housing starts showed a 3 percent gain, hardly evidence of cooling.
EQUITIES
Dog days
After corporate earnings reports fade from the scene over the next 10 days, the stock market will be facing the dog days, when many investors head for the lake or seashore.
The question is whether companies can generate enough fresh earnings momentum over the next two or three months to carry the market through its traditional spooky October. Otherwise, it may be a chilly autumn for Wall Street.