CONSUMER CONFIDENCE
Mood modification?
At this point in an economic recovery, Americans are supposed to be lining up for an array of well-paying new jobs. Employers, flush with fresh cash, are expected to loosen payrolls as production pushes skyward. Result: a self-fulfilling cycle of growth, as incomes expand.
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Is this time different? Perhaps so. Economists say soaring worker productivity, assisted by advanced computers and technically refined software, has altered expectations.
As more and more goods are produced with the same number of workers, employers are able to put off the inevitable day when they must hire. Some companies are outsourcing work overseas.
The ho-hum job market is being blamed for a slightly dour mood among Americans as they look forward. Although attitudes have bounced from recession levels, the leap is not as dramatic as analysts anticipated.
That brings us to Tuesday’s report on consumer confidence for February. Chicago economist Diane Swonk expects it to show a modest uptick of less than a point from the 96.8 reading a month earlier.
She says consumers are showing evidence of a lift in their attitudes by what they are buying.
“It’s no longer just a question of people buying cars and houses,” said Swonk, of Bank One Corp. “Consumers are moving beyond those purchases, stepping up to buy furniture as well as expensive meals in restaurants. They are traveling to faraway places.”
She added, “We are living in a show-me economy, one that is providing some surprises on the upside.”
GROWTH RATE
Down and up
Although the sizzling rate of growth from late last year has fallen off, that doesn’t mean a slowdown is imminent.
Chicago economist Robert Dederick is expecting Friday’s revised report of fourth-quarter gross domestic product to show expansion at a 3.3 percent annual rate, down from the 4 percent reported nearly a month ago.
“It turns out that the trade numbers were a bit less favorable than estimated, construction was weaker, and inventory building was slower,” said Dederick, of RGD Economics.
While the growth rate may seem disappointing after an 8.2 percent pace in the third quarter, he sees signs of brightening activity as spring approaches.
“The economy currently is growing at between a 4 percent and 5 percent rate, and the expansion is turning into a full-blown, old-fashioned recovery,” Dederick said.
HOUSING DATA
Construction chill
The 7.9 percent drop in January housing starts reported last week will have analysts on guard for reports on January existing-home sales, due Wednesday, and new-home sales, due Thursday.
Given the long, nasty cold spell that set in after the holidays, it is too soon to expect clear signs about where the real estate market is headed. But lackluster activity at sales centers is prompting some builders to offer incentives, including one Chicago-area developer advertising no payments until 2005.
High land costs, rising property taxes and escalating impact fees for schools are making it tougher to build affordable housing. So this could be the year that construction begins to feel a chill.
EQUITIES
Bear sightings
The stock market has behaved in a fitful fashion since the beginning of the year. With first-quarter corporate results still about six weeks away, investors are awaiting company confessions of earnings shortfalls.
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Bannockburn-based mutual fund manager Henry Van der Eb of the Gabelli Mathers Fund sees danger ahead for Wall Street and is keeping his holdings largely in cash.
He says that with the annual federal budget deficit hovering near $500 billion and short-term money available at 1 percent, a 45-year low, there are few options left for further stimulating the economy, should it stall.