Worries about the global trading system have sparked complaints of protectionism, a response to currency meltdowns that have left much of Asia, not to mention Russia, impoverished. Yet the United States, which is running a worrisome annual trade shortfall of nearly $185 billion, still is considered a safe haven. Watch for Tuesday’s report on the August trade deficit to show that the situation remains dicey. Chicago economist Samuel Kahan said he sees “a slight further deterioration, to $14.5 billion, from $13.9 billion a month earlier.” He says the deficit in goods, for now, has moved to a back burner, while world leaders struggle with the global financial crisis. “Stability in the financial world would set the stage for the trade in goods to follow suit,” said Kahan, of A.S.K. Financial Research. “At this point, the major debate about trade remains whether the situation will get worse.”
HOUSING
STARTS MAY SOON PEAK
Consumer confidence has been slipping, prompting some analysts to express fears that housing starts could follow. But economist Sung Won Sohn says Wednesday’s report for September will show home construction advancing slightly, to around 1.63 million units annually from 1.61 million a month earlier. “There has been a lot of refinancing of mortgages recently, but sales of both new homes and home resales seem to be moving sideways,” said Sohn, of Norwest Corp. in Minneapolis. From here, he sees little chance that home construction will rise appreciably, if for no other reason than his forecast of a 50-50 chance of a global recession. He added, “housing starts appear to have peaked, but mortgage rates will continue to decline, placing a floor under the housing market.”
EARNINGS
FORECAST NOT FAVORABLE
The corporate earnings beat goes on, amid fears that profits are faltering. Most analysts now say mainstream, blue-chip companies will report third-quarter profits roughly 3 percent below last year’s equivalent numbers. When this year began, the same analysts were calling for profit growth of 15 percent-plus. If the latest forecast proves accurate, the current crop of reports would represent the worst quarter for corporate earnings growth in seven years.
STOCK MARKET
WORST MAY BE OVER
Many investors in the stock market have lost 20 or 30 percent in the summer price slide, but market observer Fred Gordon says the bad news has run its course. For one thing, the Federal Reserve trimmed short-term interest rates last week, the second move in 16 days. Gordon notes that most major indexes managed to just miss the 20 percent threshold usually considered the bellwether of a true bear market. “Stock prices have steadily discounted a long list of worries, including weaker earnings, the problems of President Clinton, the meltdown in Russia and the crash of huge hedge funds,” said Gordon, who for many years wrote an investment newsletter in Northbrook. “There still is a high level of fear, but that’s not entirely a bad thing. From here, the upside potential appears to be greater than the downside.”
