|
June 8, 2001
Neatly boxed, we are... bracketed, fenced, and range-bound. The economy is neither recovering nor recessifying.
Thirty-year, low-fee mortgages crested at 7.50% in the second half of May at the peak of hopes for rapid recovery, and this week found bottom at 7.25%, resting on faith in just enough economic strength to avoid a recession.
I'm guessing, but this tidy balance seems poised to tilt toward weakness.
Belief in recovery later in the year rests on two assumptions: first the everybody-knows lag between Fed rate cuts and happy economic effect, and second that someday soon excessive inventories will be worked down to a level where somebody will have to place a new order for something.
These two theories have merit, but current data do not evidence their arrival, and the more we learn about May, the worse it looks.
The leading index of department store sales forecast a 1.6% gain for May, but the actual report for the fifty largest chains inched to a .8% gain. Considering inflation running at 2.5% or so, real sales volume contracted.
In other May data, the National Association of Purchasing Management's measure of the service economy contracted to 46.6 from 47.1, creeping toward the recession level (44). Initial claims for unemployment insurance and extended claims for long-time unemployed persons both increased to eight-year highs, and were increasing week-to-week throughout May.
News from overseas is sagging, presumably because of American weakness, but at some point we will suffer in turn from theirs: France stumbled to .5% growth in the most recent quarter, while Germany's industrial production fell for the second month in a row. A new batch of data from Japan is due next week, and will not be a pretty sight.
Interest rates may continue to behave as they have, with more Fed easing and little change in mortgages. However, deepening weakness and a continuing absence of corporate earnings may drive money from the stock market to relatively fat returns in the mortgage and bond markets.
To those placing faith in the tax cut as economic stimulant... well, I wouldn't. Mr. Bush appears to have "ONE TERM" stamped on his forehead, and Democrats are already happily braying at the prospect of tax cut repeal.
There had been hope that a Bush administration would bring able, corporate-style, and boring management to the White House. However, its ham-handed treatment of energy, environmental, and missile defense issues, its shoving aside of Colin Powell and Christie Whitman... well, it makes ineptitude look like a core conservative value.
|
