GROWTH PROSPECTS
Still a tepid pace
Talk of recession is always unpopular, so it was with a sense of relief that Americans were told in mid-July that the last downturn is only a memory.
A group of academic economists said the eight-month dip was over in November 2001. In other words, things have been climbing out of a rut for about 20 months. Really?
While such talk is encouraging, it defies the tough times that job-seekers still are facing. Many businesses haven’t been hiring. Yet the economy isn’t falling off a cliff, either.
Chicago economist Robert Dederick is expecting Thursday’s report of second-quarter gross domestic product to show a tepid growth rate of 1.5 percent, or a bit less.
“This will be the third quarter in a row that we can describe as a loser, with subpar expansion,” said Dederick, a consultant to Northern Trust Co.
He said the economy continues to stumble along in what is defined as a growth recession, in which the recovery is too weak to stave off rising unemployment.
“Who would have thought we would be in a growth recession so soon after the last downturn?” Dederick said. “What this shows is that the economy still is struggling to overcome the excesses of the 1990s.”
On the bright side, he said, there are clear signs that businesses have begun spending for equipment, especially technology gear. Meanwhile, shelves are so bare that industrial production will need to rev up.
“The economy has received a lot of stimulus, and it is poised for quickening,” Dederick said. “That means growth in the second half of this year will take place at around a 3.5 percent to 4 percent rate, far better than what we have seen recently.”
EMPLOYMENT
Little change
With the job market still the No. 1 concern, Chicago economist William Hummer expects Friday’s July employment report to show joblessness unchanged at 6.4 percent, while payrolls will have grown by a modest 50,000 positions.
“We are going to see very grudging, slow improvement in the job picture. Companies still are operating with highly restrained budgets for new hiring,” said Hummer, of Wayne Hummer Investments.
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On the bright side, the job market now is on an upward slope “and we are ready to build some momentum,” he said.
“We may find that we aren’t going to see the very low rates of unemployment that we had a few years ago,” he said. “But we will see a gradual improvement, and 2004 will be much stronger than this year.”
CONSUMER MOOD
Slow to improve
The mood of Americans continues to improve. While euphoria is notably absent, attitudes haven’t been crimped to a point where folks have stopped shopping.
Watch for Tuesday’s report on July consumer confidence to show a modest rise from the 83.5 reading a month earlier.
Also due out: June construction spending on Friday, as well as the July survey of purchasing managers from the Institute for Supply Management.
After Friday’s 2.1 percent jump in June orders for durable goods, economist Ian Shepherdson noted that “the post-war rise in business sentiment is translating quickly into rising activity.”
Shepherdson, of High Frequency Economics, Valhalla, N.Y., said orders for machinery jumped 4.4 percent in the latest month, while electrical equipment advanced 3.8 percent and autos 2.2 percent.
EQUITIES
Dogged question
The stock market managed roughly a 25 percent rally over the three months from mid-March to mid-June, but has made only fitful moves in the last five weeks.
Part of the blame goes to a rise in long-term interest rates, which have jumped since Federal Reserve Chairman Alan Greenspan testified before members of Congress July 15.
The next challenge for Wall Street: Can stocks rally through the August dog days?