JOBLESSNESS
Hiring still slow
While Americans have heard much talk about a gathering economic recovery, the environment remains chancy for those seeking work.
Companies are reluctant to hire for a variety of reasons, including high health-care costs, a world situation that appears dangerous, at best, and corporate profits that are slow to improve.
That brings us to Friday’s December employment report. Chicago economist Robert Dederick looks for joblessness to rise another notch, to 6.1 percent from 6 percent a month earlier. He expects payrolls to advance by a token 25,000 positions.
“The story as we begin another year is that the economy is chock-full of cross-currents,” said Dederick, a consultant to Northern Trust Co. “We are seeing an economy of fits and starts, leaving the labor market in a state of drift.”
He said there are signs of improvement in the air, but nothing appears immediate.
“Hiring of new workers remains low on businesses’ agenda,” Dederick said. “The first half of this year will be sloppy, with an upward bias to the unemployment rate. If things move swiftly and successfully in Iraq, it will give an upward jolt to the economy.”
His bottom line: “There are all kinds of reasons to expect improvement, but it seems likely to wait until this year’s second half.”
INTEREST RATES
Inflation lurking?
The economy has been underpinned by the lowest interest rates in 41 years, helping to boost consumer buying and fostering a boom in real estate. The question now is whether the Federal Reserve will soon reverse course.
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Chicago investment manager William Hummer says many economists are calling for the Fed to do an about-face should there be any signs of inflation.
“Everyone is joining the chorus for more and more money to be created, but the tune could change rapidly,” said Hummer, of Wayne Hummer Investments.
He said a recent run-up in the price of gold and oil, with upward pressures on other commodities, “has, in the past, been an indicator of what lies ahead. Investment in real estate also is a classic sign that people are trying to hedge against inflation.”
For now, of course, there are few signs price pressures will return.
According to Hummer, “There has been a paranoia about deflation, or falling prices, a concept that makes no sense. That brings up a dark suspicion that, perhaps sooner than people expect, inflation will come back to bite us.”
ECONOMIC REPORTS
Factory orders
A lineup of economic reports includes the December nonmanufacturing index from the Institute for Supply Management Monday. In November, the survey showed an unexpected jump, to 57.4 from 53.1.
On Tuesday, the Commerce Department reports November factory orders. In October, they grew by a solid 1.5 percent. On Wednesday, the government reports on November consumer credit. A month earlier, borrowings rose by a paltry $1.5 billion.
INVESTING
Smoother ride
The stock market has just completed a three-year losing streak, its worst showing in 60-plus years, and many investors are in a less than sunny mood. But the new year began with a rally.
Chicago investment manager Douglas Nardi says the outlook is for further improvement. He expects businesses to shortly begin stepped-up spending for capital equipment.
Accordingly, he expects that stocks will rise by 5 to 10 percent during 2003.
But Nardi, of Scudder Private Investment Counsel, added, “The key will be diversification and asset reallocation, the same as over the last three years.”
He said investors currently face more dangers by staying out of the stock market than by being in it.
“Although there are a lot of mixed messages, the economy is in recovery, following a recession that was fairly modest,” Nardi said. “Stock valuations are not a big issue. If inflation remains low, as just about everyone expects, prices should be on an upswing.”