THE ECONOMY
Tide turns slowly
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Economists, always eager to be the first to detect a trend, have been quick to declare that the recession is over. A few, in fact, are insisting the downturn that began last March really never qualified as a true recession.
That sounds good, but for workers the long string of corporate layoffs and a rising rate of joblessness have created a cruel bite, by whatever name. And because cutbacks continue even when the economic storm has supposedly passed, such pain is continuing.
Chicago economist Robert Dederick expects Friday’s February employment report to show joblessness rising to 5.8 percent, from 5.6 percent a month earlier. Conversely, he anticipates that payrolls will gain 25,000 positions, the first such growth in seven months.
“The economy is turning the corner, and the labor situation is improving,” said Dederick, a consultant to Northern Trust. “The next step is for the recovery to push down the unemployment rate, but that will take into the second half of this year.”
Dederick said the economy “has rounded the bend. It is still far below satisfactory, but we are seeing indications that the recession has ended. The question is whether the recovery will be very slow and gradual, or will it pick up momentum.”
%%
Unemployment rate
By percent
July 4.5%
August 4.9
September 4.9
October 5.4
November 5.6
December 5.8
January 5.6
Source: Labor Department
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SERVICE SECTOR
The other shoe?
Those who believe that a second leg of recession may appear shortly cite the nation’s service sector, which has held firm while manufacturing took a tumble. If factories are once more beginning to hum, as most analysts insist, perhaps it will be service workers who next feel the pinch of a slowdown.
Tuesday’s February non-manufacturing report from the Institute for Supply Management will be monitored carefully for further signs that services are becoming sluggish. In January, the group’s index showed a modest decline, to 49.6 percent from 50.1 percent a month earlier.
Analysts said the aftereffects of the Sept. 11 terrorist attacks still are being felt in a broad array of services, which were sent into a tailspin. If the sector remains stagnant, the economic revival will prove disappointing.
On Wednesday, the Federal Reserve offers its beige book, a region-by-region look at the economy. Watch for more evidence that activity is picking up, just in time for spring.
CONSUMER CREDIT
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Spending up
If the recovery is to build up steam, much will depend on consumers, who have kept up a heavy schedule of borrowing to keep spending afloat. When asked last week whether debts are becoming excessive, Fed Chairman Alan Greenspan told members of Congress, in effect, not to worry.
A fresh look comes Thursday, with the report on consumer credit for January. Analysts at Banc of America Securities in New York note that while auto loans have zoomed, “revolving credit has been on a declining trend, falling by the largest amount ever recorded in December.”
However, they believe strong retail sales last month created an about-face, and that consumer credit rose by $5 billion, reversing the previous month’s $5.1 billion decline.
STOCKS
Back to basics
The stock market mostly has held firm over the last month, despite some wild, daily 100-plus point swings. But another nervous period looms: warnings season, that stretch at the end of each quarter when companies preconfess their earnings shortfalls. With the economy’s chances still iffy, some market behemoths are bound to produce horror stories.
Market observer Fred Gordon, who for many years wrote a stock letter in Northbrook, thinks that, despite the market’s nervousness, the path of least resistance is higher.
“Unlike the Winter Olympics, they don’t fire a gun when a new bull market begins,” said Gordon. “Stocks are foreshadowing the economic recovery, which clearly is under way.”
He said investors should think about acquiring stocks of companies that are in basic industries, as well as some retailers.
“People tossed out some very healthy babies with the bath water,” he said of the recent bear market. “At this point, stocks are headed higher, and the 2-year-old record close of the Dow Jones industrial average [11,722.98] could be challenged and go by the boards before this year is out.”