Through nearly 10 straight years of economic expansion, Americans have displayed an uncommonly bright attitude. Like a hawk circling lazily, endless updrafts in confidence, to near a 30-year peak, carried activity to new heights. But an end to hype about the new economy, coupled with corporate layoffs and weak sales, have created a troubled mood. Watch for Tuesday’s report on February consumer confidence to show the descent deepening slightly from the four-year low of 114.4 a month earlier. That’s the prediction of Chicago economist Diane Swonk, who said, “Americans continue to react to negative news in the headlines.” But she said consumers haven’t quit spending, and confidence is hardly at recession levels. “Actions speak louder than words, and people are still buying,” said Swonk, of Bank One Corp. “We need a sprinkling of good news, because confidence appears to be very close to an inflection point. Americans will spend as long as they can spend. Meanwhile, they report that their own situation remains good.”
HOME SALES
OASIS OF STRENGTH
Although a dark undertone dominates discussions about where the economy is headed, there still are many bastions of strength. Notable is housing. Watch for Monday’s report on January existing home sales to show a mild increase from the 4.87 million unit annual rate a month earlier. And Tuesday’s January new home sales also could display a bounce, after a 13.7 percent leap in December. Economist Ian Shepherdson says of housing, “There will be no problem here over the next few months.” But Shepherdson, of High Frequency Economics, Valhalla, N.Y., added, “We are concerned that the upward trend in mortgage applications may be running out of steam. Lower mortgage rates might not be enough if consumer confidence keeps falling.”
DURABLE GOODS
MINOR REVIVAL EXPECTED
The manufacturing sector will be in focus Tuesday, as analysts look for a slight revival in January orders for durable goods. On Wednesday, the Commerce Department offers a revision of fourth-quarter gross domestic product. Perhaps the most critical indicator rolls out Thursday, with the February National Association of Purchasing Management report. Analysts note that the survey’s manufacturing index has remained below 50–the level that indicates contraction–for six months. That’s widely interpreted as meaning that the industrial sector is in recession. The index plummeted to 41.2 in January, a 10-year low. February auto and light truck sales are expected to decline by as much as 15 percent from a year earlier.
EQUITIES
TIME TO COMMIT?
The stock market’s endless winter has featured a string of earnings shortfalls. But Chicago investment manager William Hummer says Wall Street’s mood often improves as the weather warms up. “The economy remains healthy and there is less reason for investor caution, because a lot of excesses have been eliminated,” said Hummer, of Wayne Hummer & Co. “The second half of this year should be much more positive. At this point, we are getting to the bottom of the market’s trading range.”
