Factories are humming, the nation’s economy is purring and few analysts are calling for a slowdown anytime soon. So why are a few voices predicting manufacturers are about to run afoul of problems? The answer lies in the Year 2000 computer bug, which is, by all accounts, an enigma. No one is sure whether it can bring the wheels of economic output to a halt. For now, however, manufacturing is robust; Wednesday’s report on February orders for durable goods likely will show a solid increase. Chicago economist John Silvia is looking for a gain of 1.5 percent, chiefly because of transportation orders. “The auto industry is sizzling as people rush to buy, and computer orders haven’t slowed as much as analysts were expecting,” said Silvia, of Kemper Funds. He does, however, expect Year 2000 problems to begin slowing orders by late summer: “Companies have moved up their buying of equipment and software to try to get ahead of Year 2000, and we should see a significant slowdown in this year’s third and fourth quarters.”
INTEREST RATES
CRUDE PRESSURES
Blame bubbling crude-oil prices for exerting upward pressures on interest rates. In turn, that has created concerns that the Federal Reserve will tighten monetary policy when it meets next week. When policymakers gather March 30, part of their agenda will include last week’s so-called beige-book report, which cited regional wage pressures and a scarcity of skilled workers. But analysts said there is no smoking gun in specific price increases to prove that inflation is worsening. That makes it unlikely the Fed will boost short-term interest rates.
CORPORATE PROFITS
CONFESSION TIME
With less than three weeks remaining until companies report first-quarter profits, investors are on watch for dreaded preannouncements, sometimes described as confession time. That’s when companies warn analysts and shareholders that earnings for the current quarter are floundering. Last week’s clinker came from AMR Corp., parent of American Airlines, which warned that the February sickout by pilots would send earnings into a nose dive. On Friday, analysts trained their guns on IBM, sounding alarms that revenues are in doubt; the company, however, offered no formal warning.
STOCK MARKET
PROCEED WITH CAUTION
While investors in the stock market hailed last week’s breakthrough of 10,000 for the Dow Jones industrial average, there was more nervousness than jubilation. Pessimists predicted the fabled number will prove to be a proverbial “graveyard in the sky,” a point of resistance at which stocks perish. Chicago market analyst Rao Chalasani, while saying there still is opportunity for stocks to advance, warned that equities are far from cheap. Chalasani, of Everen Securities Inc., told clients, “We recommend investors exercise increasing caution as the stock market moves into uncharted territory; downside risks significantly outweigh potential rewards at this time.”
