PRODUCTIVITY
Working harder
Americans make it a point to rub their eyes and seek more coffee when economists talk about labor productivity and costs. Yet unless businesses can squeeze more work out of each employee, a lack of pricing power will put a severe damper on corporate profits.
That brings us to Wednesday’s productivity report for the fourth quarter. Economist Geoffrey Somes is looking for growth of 3 percent, on top of the 1.5 percent rate reported three months earlier.
“Strong productivity growth could generate further increases in real income,” said Somes, of Fleet Boston Financial. “This would, to some extent, mitigate the loss in aggregate purchasing power from rising joblessness.”
Somes said that the situation is unlike past recessions because “real income has continued to grow, buoying consumer spending.” As for labor costs, they likely will slip from the 2.3 percent growth rate in the third quarter. Analysts said because of numerous layoffs, the cost trend remains moderate.
VEHICLE SALES
Still rolling
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As consumers carried the economy for much of the last year, they signed up for endless rows of opulent new homes and high-priced items to fill them. They also bought millions of new cars.
Don’t look for any detour yet. Most of the numbers on January car and light-truck sales are in, and Chicago economist Peter Glassman says they turned out nothing like the setback pessimists were expecting. A few stragglers from the auto industry will report Monday.
“The auto industry seems to be holding up quite well,” said Glassman, of Bank One Corp. “Instead of borrowing sales from future months, it appears that zero-percent financing actually stimulated new buying activity.”
He said January will show a domestic sales rate of about 12.1 million units, down from 13 million in December. But sales of imported vehicles were very strong, adding to the total.
“Consumers appear to be confident,” Glassman said. “They are taking advantage of a lot of incentives, including offers for $2,000 or more in cash back and, in a few remaining cases, zero-percent financing.”
FACTORY ORDERS
Signs of revival
The manufacturing sector has been in the doldrums for about 15 months, but signs finally are emerging of a meaningful revival. Analysts are calling for Tuesday’s report of December factory orders to show an advance of 1 percent, following a drop of 3.3 percent a month earlier. The number has swung wildly, with a 7 percent gain in October following a 6.5 percent decline in September.
Economist Ian Shepherdson says orders for many goods remain essentially flat, but “the overall picture is clearly favorable.”
Shepherdson, of High Frequency Economics, Valhalla, N.Y., said after last week’s 2 percent jump in December orders for durable goods, “orders for computers and electronics rose 3.5 percent for the month and now stand at their highest level since June. Non-defense capital goods orders are clearly recovering too.”
On Thursday, the report on December consumer credit likely will show such debts advancing at only about half the pace of a month earlier, when they mushroomed by $19.9 billion.
EQUITIES
Skeptical investors
As the stock market looks to the remainder of 2002, analysts are salivating over the prospect of corporate profits zooming 30 percent to 40 percent or more. Admittedly, such shoot-the-moon gains would come from current levels that are profoundly depressed.
One problem for Wall Street is that some investors have grown skeptical of corporate earnings reports. The house of cards that fell at Enron Corp. has them wondering if other blue-chippers have potential scandals buried in deeply confusing corporate ledger sheets.
A second negative factor: The Federal Reserve has stopped lowering interest rates, after more than a year of ratcheting them downward to a 40-year basement.
The question for the market, as it leaves behind the benign aura of January to confront February, not always a winning month: Can investors remain focused on the flowering of profits in the months ahead, and ignore the near-term clouds of doubt?