To the traffic cops at the Federal Reserve, fast-spending Americans have become scofflaws, ignoring speed limits, traffic lights and no-passing zones. The central bankers, with a half-dozen interest rate increases in less than a year, have been trying to force consumers to ease off the accelerator. The question is whether such a powerful enforcement campaign will end in a head-on collision. Next on the Fed’s radar screen is Friday’s May producer price index. Chicago economist Brian Wesbury says it will show a modest gain of 0.3 percent but, when volatile energy and food are excluded, it will show wholesale inflation to be flat. “The big story once again is oil, as it has been for a year and a half. But everywhere else, the news on inflation is good,” said Wesbury, of Griffin, Kubik, Stephens and Thompson, an investment firm. He said manufacturers of just about every item are finding ways to produce goods at lower cost. The net result of recent indicators, Wesbury said, is that “the Fed will remain on hold when members meet on June 28. Because of evidence the economy is slowing, the odds of an interest rate move have diminished dramatically.”
CONSUMER CREDIT
ON THE DECLINE
Americans’ infatuation with the credit card lifestyle may be waning, as consumer credit in March grew a scant $9.1 billion, exactly half the $18.2 billion of two months earlier. Analysts are calling for the April figure, to be released Wednesday, to show another rise of about $9 billion. Also due out: a revision of first-quarter labor productivity and costs, on Tuesday. The widely watched initial number indicated some problematic trends: Productivity growth slowed to a 2.4 percent annual rate from the sizzling 6.9 percent pace in last year’s fourth quarter, while labor costs advanced 1.8 percent, reversing a 2.9 percent decline from three months earlier.
CORPORATE EARNINGS
`WARNING SEASON’ BEGINS
It’s time for Wall Street’s tri-monthly case of the nerves, as investors face so-called warning season, when companies confess earnings shortcomings that will affect the bottom line at the end of the second quarter. Chicago investment manager Marshall Front, however, said “the bad news is already out.” Big banks and brokerage houses, hit by the Fed’s tightening, are encountering problems that have been well-advertised, said Front, of Front Barnett Associates. Further, he said, “many stocks have long ago discounted a slowdown in the economy and now are looking to the end of the skein of interest rate increases. At this point, investors are growing more optimistic that the Fed won’t crunch us into a recession.”
WALL STREET
SIGNS OF A SUMMER RALLY?
The elusive summer rally in the stock market may be under way, as blue-chip issues have gained about 5 percent since Memorial Day. With fewer signs the economy is overheating, analysts are growing more upbeat by the day. On the horizon, however, is a huge flock of buzzards, peering down at the dot-coms, getting ready to descend. Many Internet darlings of only a few months ago are facing a desperate search for cash to get them through the end of the year. If new sources of financing can’t be dug up, and soon, investors could be unnerved by watching the dot-coms’ bones being picked clean.
