The index of leading economic indicators has been pointing to weaker growth for months, but hardly to a catastrophe or downward spiral. Economists instead perceive a steady drip-drip-drip, casting a wet blanket over the idea that the Federal Reserve will rapidly lower interest rates to revive flagging activity. Over the last six months, the Conference Board’s leading indicators have slipped 3.2 percent, enough to create concern but not enough to declare a recession is at hand. Economist Tim O’Neill expects Thursday’s report on the index for January to show a modest rebound, after the dismal 0.6 percent decline a month earlier. “The Fed has aggressively eased interest rates, and the money supply has grown very rapidly. That means the economy calls for subdued optimism in the months ahead,” said O’Neill, of Chicago’s Harris Bank and its parent, Bank of Montreal. “Although there has been a very negative tone to much commentary, there is no recession.” O’Neill said he looks for economic activity to remain tepid until midsummer, “but we should see a very sharp rebound in this year’s second half.”
FEDERAL RESERVE
FOCUS TURNS TO BANK LOANS
Last week’s testimony before members of Congress by Fed Chairman Alan Greenspan created a clear impression that the central bank is out of the picture for interest rate reductions, at least until policymakers meet March 20. That has prompted some analysts to predict that Fed members will turn their attention to difficulties in the banking system, especially to problem loans and higher underwriting standards, both of which could make financial institutions reluctant to lend. But Chicago banker Kenneth Skopec says such strictures on lending shouldn’t be blown out of proportion. “Banks are still beating the bushes and looking for business. Legitimate borrowers can readily find loans,” said Skopec, of Mid City Financial Corp. Although the prices of some bank stocks may not fully reflect the dangers of defaults in a deep downturn, he said, “there has been no unreasonable tightening of credit.”
CONSUMER PRICE INDEX
INFLATION CREEPS HIGHER
After last week’s shocking 1.1 percent jump in January prices at the wholesale level, analysts lack confidence about making predictions for Wednesday’s report on the month’s consumer price index. The experts hope for nothing worse than a jump of 0.4 percent. They were, however, quick to pooh-pooh the wholesale price report, and slow to sound any long-term alarms, pointing to rising costs for cars, paper and natural gas as the drivers of the inflation scare.
EQUITIES
A CONFIDENCE GAME
Stock, bond and commodity markets, along with government offices and many banks, are closed Monday for Presidents’ Day. The weekly auction of short-term Treasury bills is delayed until Tuesday. Meanwhile, the stock market finished last week on a down note. Investment manager A. Gary Shilling says Wall Street’s prospects hinge on how quickly Americans can improve their moods. “Confidence is always important for generating economic activity, but it is paramount for stock prices,” said Shilling, who runs a Springfield, N.J., consulting firm. “So, with stocks now driving the economy, confidence is the name of the game.”
