F.GEMS: MICROS to GO!...

[Francois+Goelo]

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

WEEKLY UPDATE FOR: June 16, 2001 by Bob Bose

Prior Week in Review:

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

                        06/15/01     06/08/01     %Change 
  
 S&P 500                 1,214.36     1,264.96      -4.00% 
 Dow Jones              10,623.64    10,977.00      -3.22% 
 NASD Comp               2,028.42     2,215.10      -8.43% 
 Russell 2000              495.13       511.72      -3.24% 
 SOX Index                 608.92       675.70      -9.88% 
 Value Line                391.26       410.22      -4.62% 
 MS Growth                 548.30       564.39      -2.85% 
 MS Cyclical               538.97       566.23      -4.81% 
 T - Bill                    3.43%        3.53%     -10 BP 
 Long Bond                   5.67%        5.73%      -6 BP 
 Gold - Oz-Near Month     $272.30      $274.50      -$2.20 
 Silver - Oz-Near Month     $4.40        $4.37       +$.03

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

Backward Looking Data Weak - Forward Looking Reports Better
Both Producer and Consumer Price Indexes Positive
No Change In Our View - Second Half Recovery Still Best Bet

*Richmond FRB Index improves to -20 in May from -25

*May Retail Sales rose +.1% - Ex Auto +.3% - Also April
Revised to +1.4% from +1.1%

*Federal Reserve Board (FRB) Beige Book Stresses Softness

*Jobless Claims fell -12,000 to 428,000 - Four Week
Moving Average rose +11,000 to 424,500

*April Business Inventories unchanged - Sales fell -.5%
Inventory/Sales Ratio rose to 1.44 months from 1.43

*May Producer Price Index rose +.1% - Core Rate -
Without volatile food and energy prices - rose +.2%

*May Consumer Price Index rose +.4% - Core rate up +.1%

*May Industrial Production off -.8% - Eighth drop in a row

*Capacity Utilization for May fell to 77.4% - Lowest
Since August 1983

*Michigan Consumer Sentiment at Mid Month 91.6 - Virtually
Unchanged from May's final level of 92.0


No reports that were released last week would cause us
to alter our long held view that an economic recovery
should begin late in the second half and accelerate into
2002. The weakest appearing reports were industrial
production, and, naturally, capacity utilization - but
they are only reflecting the concentration of the slowdown
in the manufacturing sector. In effect, old news.

The FRB's Beige Book also reflected a very soft economy,
and was somewhat unusual in the tone of the summary remarks.
But, there was also some good news in the report in that
they noted "Most districts saw only modest pressure on
wages." And "... workers report favoring job security
over higher wages." As you know, we are much more concerned
than most that inflationary pressures could build as the
economy accelerates, so the absence of wage pressures
is a real positive.

The more broadly based price indexes also support that there
is no near term price pressure. At the producer level
both the overall index and the core rate (excluding the
more volatile food and energy categories) were well
behaved. And, while the "as reported" consumer index
rose sharply, the core rate was well contained. And, since
these surveys were taken, energy prices have backed off. So,
for now the Federal Open Market Committee (FOMC) will not
feel constrained by inflationary concerns.

While one bit of data is never conclusive, the fact that
business inventories were unchanged, even as sales eased,
is at least modest support that the worst of the production
cutbacks has already occurred. And then there is the consumer.

As noted above, the Michigan Consumer Sentiment Survey was
basically unchanged over the past two weeks. Some may view
this report as "who cares", but the point is that consumers
do not appear to be retrenching, and certainly not to the
extent some believe was implied by the latest retail sales
report. In other words, we are much more comfortable
"smoothing" the retail sales data for April and May as
an indication of overall consumer demand, and the latest
Michigan Survey supports our view.

And, in just over a month, the first weekly mailing of tax
refund checks will be begin - just in time for "back-to-school"
spending, or a little extra vacation spending. And, with any
luck at all, the lagged impact of prior monetary easing should
begin to "kick in" shortly thereafter, in time for the important
holiday selling season.

Perhaps this is "scripting" the consumer too precisely, but
in the larger scheme of things it is the direction, and
magnitude, that are important not the exact timing. So, given
our belief that consumer spending should recover as the second
half progresses, we remain convinced that a recovery will
be underway before year end.

And, given the benign inflationary readings, and the tone of
the FRB Beige Book with an easing bias in place, it seems
likely that the FOMC will take out an "insurance policy" later
this month with one more rate cut. Stay tuned !



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

Tuesday: Housing Starts/Permits

Wednesday: Leading Economic Indicators

Thursday: Jobless Claims, Philadelphia FRB Index International Trade Data