F.GEMS: MICROS to GO!...

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***¶***Weekly Economic Indicators & Second Guessing Grenspan....

WEEKLY UPDATE FOR: June 2, 2001 by Bob Bose...

Prior Week in Review:

Financial Market Highlights:
============================

                        06/01/01     05/25/01     %Change 
  
 S&P 500                 1,260.67     1,277.89      -1.35% 
 Dow Jones              10,990.41    11,005.37       -.14% 
 NASD Comp               2,149.44     2,251.03      -4.51% 
 Russell 2000              501.72       508.62      -1.36% 
 SOX Index                 617.60       654.64      -5.66% 
 Value Line                406.99       413.63      -1.61% 
 MS Growth                 568.75       564.76       +.71% 
 MS Cyclical               562.79       562.88       -.02% 
 T - Bill                    3.54%        3.57%      -3 BP 
 Long Bond                   5.71%        5.84%     -13 BP 
 Gold - Oz-Near Month     $268.00      $277.90      -$9.90 
 Silver - Oz-Near Month     $4.42        $4.56       -$.14

Economic News:
==============

Recent Economic Reports Mostly Quite Positive
Economy Bouncing Along Bottom - Confidence Recovers
Our View Remains - No Recession, Second Half Recovery

*Q1 GDP revised downward to +1.3% - Prior week's report

*April Personal Income rose +.3% - Spending rose +.4%

*May Consumer Confidence rose to 115.5 from April's 109.9

*Jobless Claims up +8,000 to 419,000 - Four Week
Moving Average drops -1,500 to 402,500

*Chicago Purchasing Managers' Index for May 38.7 -
Essentially unchanged from April's 38.9

*April Construction Spending rose +.3%

*Nat'l Assn. of Purchasing Managers' Index eased to 42.1
From April's 43.2

*Labor Department Employment Report
- Unemployment Rate eases to 4.4%
- Nonfarm Payrolls fell -19,000
- Average Hourly Earnings rose +.3% to $14.26
- Average Workweek rose +.1/hr to 34.3/hr


Virtually all the recent economic reports have been quite
good, implying economic conditions are not getting worse,
and setting up the economy for a recovery later this year.
However, we are still concerned that the FOMC (Federal Open
Market Committee) may have been too aggressive, so we still
believe that inflation risks are greater than consensus
expectations. But near term, the outlook is improving.

Perhaps the "key" report was the fairly good gain in
consumer confidence for May. As most of you know, consumer
spending drives approximately two thirds of economic activity.
Our view has long been that if consumers have confidence,
and the wherewithal, they will spend. Both conditions are
currently positive, and while we would be the first to admit
that one report is not a trend, it is nonetheless an
encouraging bit of information.

In addition, it also has implications for FOMC policy. As
we have noted several times, the FOMC was worried about
consumer confidence, driven by a negative "wealth effect."
We have never been big believers in the "wealth effect" -
negative or otherwise. But the FOMC believes, and that's
what counts. However, if consumer confidence continues to
hold up, then the FOMC will likely be less aggressive in
lowering rates.

While the labor market is still clearly soft, the improvement
in the unemployment rate and the positive revisions to recent
data suggest that deteriorating labor market conditions should
not erode consumer sentiment. However, all was not positive
in Friday's Labor Department report.

Consider the following year-over-year comparisons of increases
in average hourly earnings.

Jan '01 4.00%
Feb 4.21%
Mar 4.35%
Apr 4.25%
May 4.47%


This looks very much like a trend to me, and is the primary
reason that in my opinion consensus inflationary expectations
are too low, as productivity "gains" during the first quarter
were non-existent.

The point I had made in earlier issues, in my opinion, remains
valid, and worth repeating. The FOMC is making a very, very big
bet. And that bet is that they can jump start economic growth,
and that productivity growth will pickup sharply as economic
growth resumes, and that reduced pressures in the labor markets
will moderate gains in unit labor costs. In my view, this is a
lot that has to go right - with almost perfect timing.

It's not that I don't think this scenario won't play out, it's
just that my concerns are that it won't play out perfectly. My
forecast remains for a second half recovery continuing into 2002,
and that should reignite productivity growth. But, economic
growth of 3.0% may only produce productivity gains of, say 2%.
And, if pressures in the labor markets don't abate, as the
economy recovers, inflationary expectations will rise.

In short, near term the news remains positive as the probabilities
for economic recovery improve. But, risks remain in my view -
just not the risks most investors are worrying about. Stay tuned !



Current Weekly Calendar of Economic Data:
=========================================


Tuesday: Final Q1 Productivity, Factory Orders

Thursday: Jobless Claims, Consumer Credit