The dreaded “D” word is haunting Asia, as the region’s deepening downturn shows few signs of abating. As for the depressive effects of the malaise on the U.S., some analysts are comparing the situation to secondhand smoke. It can gradually, almost imperceptibly, eat away at its victim’s health. A measure of Asia’s impact on U.S. manufacturing will be taken Wednesday, with the report on May orders for durable goods. Chicago economist Robert Dederick says it will show a drop of 1 percent, partly reversing a 2.2 percent gain a month earlier. “Asia clearly is holding back exports, and that is affecting the manufacturing sector,” said Dederick, a consultant to Northern Trust Co. “But so far it has caused flattening of new orders, not downright weakness.”
THE STOCK MARKET
FUNDAMENTAL FLAWS?
After a very emotional week, during which stock prices gyrated, the Dow Jones industrial average dropped 100.14 points Friday, to 8712.87. “The fundamentals associated with stocks are not encouraging,” analyst Robert Genetski, of Chicago Capital Inc., tells clients in a newsletter. “With current interest rates, stocks are 5 percent overvalued. If interest rates move higher in the weeks and months ahead, the fundamental value of stocks will drop by another 5 percent.”
ECONOMIC GROWTH
RIDING PROFIT ENGINE
A final revision of first quarter gross domestic product, due Thursday, should show only minor change from the sizzling 4.8 percent growth rate reported earlier. It will, however, prompt fresh analysis about whether acceleration has waned, threatening to cool corporate profits. Chicago investment manager Marshall Front says growth in the current quarter “has slowed to around 3 percent, or a bit less.” That, he said, has sent investors scurrying out of stocks that are economically sensitive, such as makers of machinery and heavy equipment. Front, of Trees Front Associates Inc., says a search is under way among investors “to put money in companies that display strong top-line growth,” or expanding revenues.
