Those who theorized that the economy would stumble have been awestruck by its performance since the opening gun of 2006. Not only has joblessness fallen to 4.7 percent, a four-year low, but retail sales have zoomed and housing construction is off the charts.
The signs of rapid revival, after a paltry growth rate of 1.1 percent in last year’s fourth quarter, aren’t entirely a surprise. Those who follow the leading indicators, a measure for taking the economy’s pulse, have been seeing signs of strengthening, not weakening.
Chicago economist William Hummer says Tuesday’s report of the indicators for January will show a gain of 0.5 percent, on top of 0.1 percent in December, 0.5 percent in November and a huge 0.9 percent advance in October.
“The strength of the economy since the beginning of the year has been an embarrassment to forecasters. There is much more momentum than most people recognized,” said Hummer, of Wayne Hummer Investments.
Although rising interest rates were expected to slow activity, the opposite is taking place, he said.
“This is a real, old-fashioned expansion and it may take additional rate hikes by the Federal Reserve to slow it down,” he said.
Expectations that the Fed would stop its rate increases in March appear premature, and they could continue into May or perhaps to midsummer, Hummer said.
That would take the short-term lending barometer from a current 4.5 percent to at least 5 percent and perhaps higher.
Other news to watch:
– The Labor Department reports Wednesday on the consumer price index for January. Analysts believe it could show a sharp gain of 0.5 percent, or 0.3 percent when food and energy are excluded–enough to place the Fed on notice.
– The stock market in recent days has hit summits not seen in 4 1/2 years, but some analysts are growing nervous.
Within weeks, stocks could hit “their high point of the year, as we expect slower earnings, seasonal weakness and still high valuations to keep a lid on robust gains,” investment manager Paul Nolte of Hinsdale Associates told clients last week.
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wsluis@tribune.com
