CONSUMER CONFIDENCE
Smiling faces
For nearly a year, Americans have been smiling through a grimace, enduring a slowdown that, by some accounts, is the mildest recession in a half century.
But a happy face, when forced for too long, can finally turn dour–which means a few more positive economic signals are needed to lift the underlying dark demeanor.
Chicago economist Diane Swonk expects Tuesday’s report on February consumer confidence to show a modest increase of 1 point, from the 97.3 index reading a month earlier.
“Americans have been winning gold medals, and the mood in the country keeps improving,” said Swonk, of Bank One Corp. “The Enron Corp. accounting woes have proven to be mostly a media frenzy.”
She said that a dip in confidence that took place last fall, after the Sept. 11 terrorist attacks, has had little effect on Americans’ willingness to spend.
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As for the economic downturn, Swonk said it appears so mild that “it’s hard to call this a recession. There are even some slivers of light at the end of the tunnel for the industrial sector.”
FEDERAL RESERVE
Ask Greenspan
With 11 interest rate cuts out of the way, members of the Federal Reserve have drifted into the background, their work apparently done. The central bank’s base rate now is at a 40-year low, so it’s time for the free-flowing cash that has been created to work its way into the economy’s many crannies.
That brings us to Wednesday’s twice-a-year testimony before Congress by Fed Chairman Alan Greenspan. Chicago economist William Hummer is looking for “a modestly upbeat assessment” from the central bank chief
“He will say that the economy is in a moderate recovery, but that some risks still prevail,” said Hummer, of Wayne Hummer & Co. “In particular, those risks involve sluggish outlays for capital equipment by businesses.”
On the upside, Hummer said, Greenspan will point to continued solid spending by consumers and the strength of the housing industry:
“He will note that the dollar remains steady and that all indications are that the economy is in a slow recovery. That begs the question–what happened to the recession?”
GDP
Pace may quicken
The economy’s snail-like growth rate of 0.2 percent in last year’s fourth quarter may quicken its step Thursday, when the Commerce Department revises its estimate of gross domestic product for the period.
Thanks to a very modest trade deficit in December–the smallest in about two years–the annual pace of growth for the quarter could move up to 1 percent.
Economists are quick to point out, however, that the perceived improvement in trade was largely a mirage–it was based on a drop in purchases of foreign goods by Americans. Exports barely budged.
EQUITIES
Piercing the gloom
While there are signs that the economy will start to blossom in the sunshine of spring, investors in the stock market are focused on winter’s gloom.
Unable to forgive the accounting transgressions fostered by Enron and others, Wall Street refuses for now to accept that profits will honestly improve.
Flossmoor investment adviser Richard Evans is telling clients that major averages did well in holding key technical levels this month.
As for what happens next, Evans says this is no time to dismiss the possibility of a sustained bullish advance.