As the economy chugs through its fifth year of expansion, there are few meaningful signs of a slowdown.
That has the Federal Reserve, which has nearly quadrupled short-term interest rates in less than 16 months, worrying about the possibility of inflation. Gasoline prices have just about doubled. Does that mean the good news can’t last?
Economist Michael Swanson expects an upbeat report Friday on third-quarter gross domestic product, with it showing the economy expanding at a 3.8 percent annual rate, faster than the 3.3 percent growth rate three months earlier.
The primary factor pushing activity into high gear is that businesses are facing bare shelves, having sold a torrent of goods, said Swanson, of Wells Fargo & Co. in Minneapolis.
“This indicates businesses will continue to expand production,” he said. “With inventory-to-sales ratios close to an all-time low, businesses will certainly not feel any pressure to reduce work schedules. In fact, they should feel the opposite pressure–to run longer workweeks to meet demand.”
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Other items to watch next week:
– Economists will carefully monitor Tuesday’s report on October resales of existing homes and Thursday’s new-home sales to see whether any fissures are starting to show up in the so-called housing bubble.
Economist Ian Shepherdson believes construction’s boom days are numbered.
“Our slowdown and recession story for 2006 and 2007 is substantially driven by the idea that the housing market will finally fall apart, beginning next spring,” said Shepherdson, of High Frequency Economics, Valhalla, N.Y.
– The stock market is approaching the final days before Halloween amid signs that the October jinx is in full effect. Equities have fallen by more than 4 percent this month, despite year-over-year corporate profits that are growing at a 15 percent rate.
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