ECONOMY
Growing gets tough
Descriptions of the economy have been running to extremes. Those who say expansion is locked into a sweet spot nonetheless admit offhandedly that inflation has begun to show some teeth. Those with a darker view warn that consumers, hamstrung by sky-high gasoline prices, are running out of firepower.
The tone of pessimism is the more remarkable because, looking at recent months, the economy’s growth has been quite steady. Perhaps the gloomsayers have it wrong.
Next up: Thursday’s report of first-quarter gross domestic product. Chicago economist Robert Dederick is looking for it to show growth advancing at a 3.25 percent annual rate, a shade less than the 3.8 percent three months earlier.
“The year began with a rush, but the quarter ended with a whimper,” said Dederick, of RGD Economics. “The problem was that in the month of March activity along a broad front seemed to run into a stone wall.”
Part of the difficulty, obviously, was the huge run-up in oil prices, he said.
“That affected people’s willingness to buy, cutting into both buying power and consumer sentiment,” Dederick said.
Looking ahead, however, he expects the expansion to remain in place. For one thing, business confidence remains high. At the same time, Dederick said, “we are likely to see a mini-soft patch in the economy, with somewhat more subdued growth.”
RETAIL
Sales remain weak
The ho-hum attitude of consumers may help explain some of the weakness in retail sales during recent weeks, although most Americans never stop spending, no matter what surveys may say.
Economist Michael Swanson expects Tuesday’s April consumer confidence report from the Conference Board to show a dip to 98, from 102.4 a month earlier.
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A strong drop in claims for unemployment benefits indicates that the job market is brightening, and that suggests relatively strong income growth, said Swanson, of Wells Fargo & Co. in Minneapolis.
“The level of initial jobless claims combined with capital expenditure growth by businesses should continue to provide strong support for average to above-average employment and wage expansion,” he said.
Swanson sees joblessness falling a bit by year-end from its current 5.2 percent rate.
WALL STREET
Rates add to anxiety
The recent course of the stock market has been anything but smooth. Even though corporate earnings reports have been rosy, investors are wary, focused on rising interest rates. More than a few analysts are saying the bull is on its last legs.
Bannockburn-based mutual fund manager Henry Van der Eb says, “The bottom line is that the Federal Reserve, and Chairman Alan Greenspan, have injected fear back into the psychology of the market by raising interest rates, which were at a too-low level.”
A higher level of investor anxiety can be seen in junk bond yields, which have widened dramatically from the interest rates on ultrasafe Treasury debt, said Van der Eb, of the Gabelli Mathers Fund.
One result, he said, “is that companies can’t impress Wall Street with profits that are 3 or 4 cents ahead of expectations. Earnings need to be off-the-charts great for stocks to go higher.”
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