CONSUMER CONFIDENCE
Still so fragile
By all accounts, the mild recession that began early in 2001 ended about five months ago. With industrial production on the rebound, and retailers rebuilding inventories, the economy clearly is on the mend.
Don’t tell that, though, to the large number of Americans who remain jumpy about their prospects. When asked about their mood, they express concerns about corporate layoffs, the possibility of more terrorist attacks and a stock market that is going nowhere fast. That suggests the recovery remains fragile.
It also brings us to Tuesday’s report on June consumer confidence. Economist Lynn Reaser is looking for the index to show a very modest dip, to around 109 from 109.8 in May.
“Consumers have been unnerved by terrorism in the Middle East and the showdown between India and Pakistan, as well as the stock market slump,” said Reaser, of Banc of America Capital Management in St. Louis. “Additionally, cold weather in May kept buyers away from stores, limiting sales of seasonal items.”
June has been a different story, she said, as preliminary data from retailers show Americans revving up spending, making up for lost time.
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“There was quite some concern that consumers had lost their enthusiasm when a University of Michigan number for early June showed a drop in confidence to 90.8 from 96.9 in May,” she said. “But we are seeing improving economic news.”
FEDERAL RESERVE
No call for action
Policymakers of the Federal Reserve will gather Tuesday to discuss monetary policy, but few analysts are calling for any action.
Chicago economist Robert Dederick said the main task facing members of the Federal Open Market Committee will be to offer a midyear forecast.
“They will say that the expansion is proceeding at a self-sustaining rate, but they will also say nothing has yet occurred to justify tightening policy,” said Dederick, a consultant to Northern Trust Corp.
While a few voices have been raised calling for the Fed to cut rates further, from a current base level of 1.75 percent, Dederick said most expectations are for the next move in rates to be up, not down.
“There is nothing to suggest members of the Fed need to give the economy any more fuel,” he said.
HOME SALES
Fertilized by rates
Reports on May sales of existing homes Tuesday and the month’s new-home sales Wednesday should lay to rest any worries that the real estate industry will weaken.
In recent days, mortgage rates have fallen to 7-month lows, helping ignite activity at subdivisions under construction.
Economist Ian Shepherdson, of High Frequency Economics in Valhalla, N.Y., said “the uncertainty about the outlook for the housing market in the wake of Sept. 11 has been replaced by a widespread recognition of the acceleration of prices.”
On Wednesday, May orders for durable goods should show a further rise, after advancing for five months in a row.
Watch for a final revision of first-quarter gross domestic product on Thursday to show modest weakening from the 5.6 percent growth rate reported a month ago.
EQUITIES
Down but not out
The stock market has bounced hard in recent weeks, but each time it has managed to hold above levels last seen in the turbulence following the Sept. 11 terrorist attacks.
Flossmoor investment adviser Richard Evans is telling clients the successful test of the autumn lows suggests prices will soon move higher.