HOUSING
1st shiver
If the economy’s roof caves in, as pessimists expect, the last rafter to tumble will be construction.
Building and buying of homes, usually the first beam to fall in an economic slowdown, has remained uncommonly resilient. But a sudden spike in mortgage rates may be the final blow that shakes the heretofore solid structure.
Economist Sung Won Sohn looks for Tuesday’s report on November housing starts to show a modest decline, to an annual rate of 1.52 million units, from 1.55 million a month earlier. But Sohn isn’t expecting any dramatic reversal.
“The news about housing is not that it’s slowing, but that it is acting as an economic stabilizer,” said Sohn, of Wells Fargo & Co. in Minneapolis.
He said an exceptional autumn, with plenty of warm weather, has boosted construction.
“Builders are going strong,” he said. “They have quite a backlog. About the only weakness in the housing industry is for high-priced homes, because the wealthy are worried about the stock market.”
He said the rich also are fretting about “a lack of year-end bonuses, corporate salary freezes and layoffs of workers.”
But for the most part, he said, the news remains good: “Housing construction has kept the economy from slipping deeper into recession.”
INDICATORS
Leading too far
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One bright spot this year has been the leading economic indicators, which continue to point to a rebound.
Unfortunately, with thousands of workers losing their jobs through layoffs, many doubt the ability of the indicators to forecast the future.
Economists expect Wednesday’s report of the gauge for November to show a rise of 0.4 percent, on top of the 0.3 percent rise a month earlier.
Chicago investment manager William Hummer says the rising index “reinforces prospects for a recovery, but the series operates with varying time lags.”
Hummer, of Wayne Hummer & Co., says economic revival will become evident early in 2002, “because we have seen a significant decline in inventories, a surge in car sales, and retailers have been cutting prices to clear shelves before Christmas.”
Although the eventual rebound may not set off many fireworks, he said, “the recovery will be built on the cumulative effects of an unprecedented amount of monetary easing by the Federal Reserve.”
TRADE GAP
Widening again
With American industrial production in decline for 14 months in a row, reports on the nation’s trade deficit have added to global concerns. Part of the problem: A lack of buying by consumers is inducing weakness both here and abroad.
Economists at Bank of America Securities in St. Louis are looking for Wednesday’s report of the trade shortfall for October to show a leap to $30 billion, from a 2 1/2-year low of $18.7 billion a month earlier.
Much of the September improvement, they say, was a one-time event, based on insurance payments stemming from the World Trade Center attacks. They see signs that American consumers are renewing their thirst for foreign goods.
Other reports on tap this week: November personal income and spending, the final revision to third-quarter gross domestic product and the University of Michigan consumer sentiment index for December, all on Friday, and the Chicago Fed national activity index for November, on Thursday.
EQUITIES
Utilities under fire
The stock market has staged an enormous comeback from being down and out after the Sept. 11 terrorist attacks. But one group, utilities, remains in an abyss. The Dow Jones utility index, which peaked at a record high last Dec. 26, has plummeted roughly 33 percent in a grinding bear market.
Flossmoor-based investment manager Richard Evans says the unhappy fate of the utilities, which have been devastated by the problems at Enron Corp., augurs poorly for any meaningful bull market in the months ahead.
“Whenever the utilities have fallen for more than six months in a row, other stocks usually follow,” he said.
“The utilities have encountered many problems in the last year, beginning with bankruptcies of the electric utilities in California, and now the collapse of Enron.”
Evans said that in past bull markets, “a setback for the utilities has been a very serious warning sign. Investors must be extremely wary.”