The economy’s armor seems impenetrable, as grapeshot fired from the direction of Asia inflicts only a few dings and dents. True, the auto industry has been taking some flak, and the aircraft industry is leaking oil. But any serious economic harm seems months away. Chicago economist Brian Wesbury says Wednesday’s report on February orders for durable goods will show a drop of 0.5 percent, reversing a sharp gain of 1.6 percent a month earlier. He believes the economy is facing a spring shower. “The order numbers have gone back and forth in a seesaw pattern since October, but Asia’s impact is being felt,” he said. “As storm clouds gather over the Pacific, we are starting to see a light rainfall, but not a full-blown squall.” Wesbury, of Griffin, Kubik, Stephens & Thompson, an investment firm, expects no severe slowdown. “The domestic economy remains quite healthy and productivity growth is strong,” he said. “That means the sun will shine again.”
INTEREST RATES
Pressure building
Barely over a week remains before Federal Reserve policymakers gather to discuss interest rates. Chicago banker Kenneth Skopec says central bankers will take no action at their meeting on the 31st, but he believes pressures are building to prompt the Fed to raise rates later in the year, and not only because of rising wages. “Too many dollars are chasing too few investments, especially in real estate,” said Skopec, president of Mid City Financial Corp. “Looking around Chicago, how many $350,000 loft conversions can our local market absorb?” Skopec said he is seeing “a lot of aggressive buying of investment property, some of which is being bought purely on speculation. It suggests some over-exuberance, some frenzy, in the real estate market.”
INDICATORS
Hints on the economy
Indicators will arrive in rapid succession this week, including February existing-home sales Wednesday, a final revision of fourth-quarter gross domestic product Thursday and January personal income and spending Friday. Of the reports, keep an eye on GDP. Analysts believe there has yet been little slowdown from its growth rate of 3.8 percent for all of 1997; many see the economy still expanding at more than 3 percent annually.
STOCK MARKET
Head in the clouds
The stock market seems to have left gravity behind and is orbiting Earth. Unfortunately, the elevated level of optimism gets only slight support from earnings realities. Analysts are looking for profits to grow at a meager rate of 1.7 percent for 1998’s first three months; at the start of this year they were calling for a rise of more than 10 percent. Despite numerous earnings downgrades, Chicago investment analyst Rao Chalasani is telling clients his upside target for the Dow Jones industrial average of 9500 remains intact. The Dow finished Friday at 8906.43. Chalasani, of Everen Securities Inc., says an ascent to 9500 “may occur in the early summer months, if not sooner, as long as long-term interest rates remain at or less than 6 percent.
