U.S. EXPANSION
Slower but strong
When Americans are told that the economy has been growing at a sizzling rate of 8.2 percent, some inevitably grow skeptical. Doubters say the growth binge is an anomaly, fed by one-time tax cuts and a flood of money produced by the lowest interest rates in 45 years.
In response, analysts say that the outsized rate of expansion in last year’s third quarter is bound to slow, but that doesn’t mean it is about to fall off a cliff.
That brings us to Friday’s report of fourth-quarter gross domestic product. Chicago economist Robert Dederick is looking for it to show activity expanding at a robust rate of 5 percent.
“The economy is finally picking up Big Mo, and that means it is likely to keep growing through the rest of this year and into 2005,” said Dederick, of RGD Economics.
He said growth in the fourth quarter “was far more rapid than was expected only three months ago.”
Among the reasons: Businesses have been replenishing inventories, capital spending is vigorous, housing is booming, and consumer demand remains solid, Dederick said.
At the same time, “trade has become less of a drag, and it may even be adding to growth,” he said, in part because of the weaker dollar.
FEDERAL RESERVE
Keeping rates on ice
With subzero temperatures hanging over much of the land, few are the voices expressing fears about overheating, economic or otherwise.
Don’t expect much such talk Tuesday and Wednesday, either, when policymakers of the Federal Reserve gather for their first meeting of 2004.
Chicago banker Kenneth Skopec expects no action on interest rates from Alan Greenspan & Co., and nothing in the next 10 months.
“The Fed will remain on hold for most of this election year, and it is unlikely there will be any action on interest rates before November,” said Skopec, of MB Financial Bank.
That’s a problem for bankers, he said, because customers on fixed incomes frequently ask when they will start to receive a higher return from their savings accounts and certificates of deposit.
“I tell them not to expect much anytime soon,” Skopec said.
More Top Picks Best Mens Leather Messenger Bags
CONSUMER CONFIDENCE
Ready to pull back?
A long list of reports due out includes December existing-home sales Monday and new-home sales Wednesday, and January consumer confidence Tuesday.
Of the group, watch consumer confidence. Unless consumers feel flush, they may stop reaching for credit cards.
EQUITIES
Growing enthusiasm
With shares up by about 40 percent from last March, investors are beginning to wonder if some of the old froth has returned to the stock market.
Chicago investment manager Douglas Nardi says there is room for a further rise, because sector rotation is taking place, boosting shares of pharmaceuticals and health-care companies that lagged in 2003.
“We are looking for a return on stocks of 10 to 15 percent this year, with much of those gains front-loaded to the first six months,” said Nardi, of Scudder Private Investment Counsel.