The list of economic signposts pointing to slower growth keeps lengthening, with housing, retail sales, the auto industry and the job market but a few of the new indications. Yet one area continues to vex members of the Federal Reserve: Goods from overseas are pouring into the country at a record pace, along with tanker loads of oil, at a time when many foreigners look askance at U.S.-made items. Tuesday’s report on the April trade deficit may help calm the Fed’s concerns. Economist Sung Won Sohn expects it to show a modest improvement, to a gap of $30 billion from a record $30.2 billion a month earlier, thanks to increased overseas buying of American-made aircraft and telecommunications gear. “Both imports and exports will be up for the month, but the trend seems to be improving,” said Sohn, of Wells Fargo & Co. in Minneapolis. He said by this time next year, the monthly trade shortfall should shrink further, slipping below $25 billion. “There is no question that the economy is slowing, with the result that imports should fall off a bit,” he said. Yet “we expect buyers around the globe to increase their purchases of American goods.”
FEDERAL RESERVE
GREENSPAN LESS HAWKISH
With barely more than a week to go before central bankers of the Federal Open Market Committee gather to discuss monetary policy, economists are divided over what will happen. But Chicago banker Kenneth Skopec comes down on the side of those who believe Fed policymakers will hold rates steady. “We are seeing a slowdown in consumer spending, especially for purchases that are interest-rate sensitive,” said Skopec, of Mid-City Financial Corp. “If the economy was doing 85 m.p.h. earlier this year, it now has slowed to around 65. It’s close to the speed limit.” Skopec said it is noteworthy Fed Chairman Alan Greenspan recently has been less hawkish than other members of the central bank, which also suggests policymakers will take a pass on raising rates when they meet June 27-28.
CORPORATE EARNINGS
ALARM BELLS SOUND
Although the parade of second-quarter corporate profits won’t begin until after the 4th of July, painful preannouncements are multiplying. Watch for more fireworks this week. In recent days, duds have been fired by Procter & Gamble, Xerox, Qualcomm and Wachovia, generating nervousness and, in some cases, heavy selling of shares.
WALL STREET
BEAR MARKET?
The stock market has yet to generate a meaningful summer rally, with major averages stuck near where they stood a year ago. Investment analyst A. Gary Shilling believes a bear market is under way, but that Wall Street hasn’t awakened to its dangers. He believes the Dow Jones industrial average is headed for a fall to 8,000, from its close Friday of 10,449.30. That would be a drop of about 24 percent. Shilling, who runs an investment firm in Springfield, N.J., said members of the Fed “can’t stop raising interest rates until they see a real drop in stock prices.” Otherwise, he said, consumer spending will remain sky-high “and there is a concern that inflation will become embedded, and that price increases will become the norm.” Shilling fears central bankers could overdo their monetary tightening, squeezing the economy into a recession.
