ECONOMIC GROWTH
Chilly forecast
A less-than-stellar conclusion to 2002 has economists fretting that the economy may once again tumble into recession. With industrial production in decline, the job market stagnant, exports weakening and holiday spending up only slightly, the year’s final weeks created an uncommon share of stumbles and pratfalls.
That has prompted some experts to raise the grim possibility that economic expansion has ground to a halt and that a so-called double dip is at hand.
Adding to the chill: nervousness among consumers about their jobs, coupled with fears about the prospects of war in Iraq and the possibility of renewed terrorism.
That brings us to Thursday’s report of fourth-quarter gross domestic product. Chicago economist Robert Dederick is looking for a meager advance at a rate of 0.5 percent, far below the 4 percent annual growth rate three months earlier.
“The economy’s soft patch was sufficiently soggy to bring us down to just north of break-even,” said Dederick, a consultant to Northern Trust Co. “We are seeing a payback for the strong expansion in the third quarter, and also for the boom times of the late ’90s.”
He said manufacturing weakened during the fourth quarter, despite another year-end auto-buying spree.
“The strength at the end of the year raised hopes that the current quarter would be stronger,” Dederick said. “However, there is a danger that activity will be crushed by a spike on oil prices and deep uncertainties over the geopolitical situation. There still are concerns about the strength of the economic recovery. It has been subdued and remains spotty.”
FEDERAL RESERVE
Rate cut unlikely
The Federal Reserve Open Market Committee meets Tuesday, and Chicago banker Kenneth Skopec has a strong hunch the central bankers will do nothing. Interest rates are in a 41-year basement, and there are few expectations they will be notched lower–for now.
Meanwhile, Skopec, of MB Financial Bank, says there is more emphasis on efforts to stimulate the economy with tax reductions than with interest rates.
“Interest rates have done their job in pushing sales of homes and cars to record levels,” he said. “But businesses must do more spending.”
He is concerned that President Bush, by pushing for a long-term approach to tax reductions and focusing on Iraq, is ignoring the need for something that will stimulate business purchases immediately.
“There is no fresh investment tax credit to encourage businesses to quickly buy equipment,” Skopec said. “President Bush needs to keep an eye on the tough lesson that was learned by his father: namely, that consumers will vote their pocketbooks.”
CONSUMER CONFIDENCE
Turning upbeat?
A barrage of numbers will include December sales of existing homes Monday and new-home sales Tuesday; and January consumer confidence and January orders for durable goods, also Tuesday.
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Of the group, keep an eye on confidence. Americans have been slow to capture the spirit of an economic rebound, but an improvement in a sour mood could indicate that better times will arrive by spring.
EQUITIES
Dreary January
The stock market is in the midst of a disappointing January, even as historians warn that the first month of any year sets the pattern for the next 11 months. Earnings for the latest quarter seem to be higher by at least 10 percent, but buyers have been unimpressed.
Flossmoor investment manager Richard Evans says for investors to accept the idea that a new bull market is under way, the Dow Jones industrial average would need to finish above its Nov. 27 close of 8931.68. Unfortunately, last week’s decline pulled the Dow about 800 points below that level.
Evans, in his Renaissance Report newsletter, is telling clients that market bellwether General Electric could “bring good things to life” if it finished above $28. GE is off more than 60 percent from its historical high and ended at $23.06 Friday.