F.GEMS: MICROS to GO!...

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

WEEKLY UPDATE FOR: June 9, 2001 by Bob Bose...

Prior Week in Review:

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

                        06/08/01     06/01/01     %Change

S&P 500 1,264.96 1,260.67 +.34%
Dow Jones 10,977.00 10,990.41 -.12%
NASD Comp 2,215.10 2,149.44 +3.06%
Russell 2000 511.72 501.72 +1.98%
SOX Index 675.70 617.60 +9.41%
Value Line 410.22 406.99 +.79%
MS Growth 564.39 568.75 -.77%
MS Cyclical 566.23 562.79 +.61%
T - Bill 3.53% 3.54% -1 BP
Long Bond 5.73% 5.71% +2 BP
Gold - Oz-Near Month $274.50 $268.00 +$6.50
Silver - Oz-Near Month $4.37 $4.42 -$.05


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

Last Week's Official Data Sends Somewhat Mixed Signals
Speeches By Chm. Greenspan and Gov. Meyer Interesting
But, Our View Remains - Second Half Recovery Best Bet

*Q1 Productivity revised to -1.2% from -.1%

*April Factory Orders fell -3.0%

*Jobless Claims up +13,000 to 432,000 - Four Week
Moving Average rose +11,000 to 413,500

*Wholesale Inventories for April rose +.3%
Sales also up +.3% - Inventory/Sales ratio 1.31

*April Consumer Credit rose +$13.9 billion - At
Annualized Rate of +10.7%


Last week's data was somewhat mixed as factory orders fell,
not too surprisingly, claims continued to go up, which was
a surprise, and the consumer sector was mixed. But, the
real "news" for the week was a speech by Federal Reserve
Board (FRB) Chairman Greenspan that was broadcast to
Singapore and another speech by FRB Governor Meyer in
New York City before the New York Assn. of Business
Economics and The Downtown Economists. In our view,
Gov. Meyer's speech was the most important. But first, a
few other items.

As we have noted many times, the major "driver" of United
States' economic activity is the consumer, and the "numbers"
for May were not particularly good. For instance, an
index put together by Salomon Smith Barney rose by half of
what was expected - an anemic +.8%. Also, Federated
Department Stores reported that comparable store sales fell
-3.3% in May as cool weather over much of the country and
rising energy prices in California hurt sales.

In addition, the auto industry reported a sloppy month
as sales fell -3.1%. However, these numbers need to be
put in perspective as the annualized rate fell to 16.6 million
vehicles, which would be the third or fourth best year ever
for the industry. This is quite important as it reinforces
Gov. Meyer's comments, and should remind everyone that the
current slowdown is from extremely high levels of economic
growth.

For longer term readers, we have, in effect, been making the
same point - essentially that while Chairman Greenspan downplayed
the inflationary threat, Gov. Meyer believes it is real, and so
do we. We have stated quite recently that monetary policy has
been extremely aggressive, and the stimulus is being applied to
an economy that has not entered recession. In addition, policy
is being supported by assumptions about returns to significantly
higher levels of productivity growth that may not materalize.

Gov. Meyer's speech discusses the "new economy" and the "new
economy again" and changes in the rate of productivity growth,
the main driver of wealth creation. His speech is worth reading.
(http://www.federalreserve.gov/boarddocs/speeches/2001/20010606)
His main point is simply that productivity growth has accelerated
for long periods after innovations, but then slowed, and the
differences are meaningful - +3.0% productivity growth at the
high end, and +1.5% at the low end.

His key thought is that while the consensus forecast is reason-
able, the " ... adjustment to an acceleration in productivity -
and that contributed to the exceptional performance earlier - may
now be behind us." If so, then there is more of an inflationary
threat than Chairman Greenspan, or the consensus, believes.

Unlike others, our view is that the inflationary threat, while
not apparent at the moment, is real. The key, as Gov. Meyer
notes, is whether productivity growth reaccelerates, or if the
adjustment from recent technological innovation is almost
complete. Clearly we will continue to monitor the data as the
economy recovers later this year and early next. Economics may
be the dismal science, but these trends are critical for the
economy and the financial markets.



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

Tuesday: Richmond FRB Survey

Wednesday: FRB Beige Book

Thursday: Jobless Claims, Producer Price Index, Business Inventories

Friday: Consumer Price Index, Industrial Production/Capacity Utilization