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

WEEKLY UPDATE FOR: August 4, 2001 by Bob Bose

Prior Week in Review:

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

                        08/03/01     07/27/01     %Change 
  
 S&P 500                 1,214.35     1,205.82       +.71% 
 Dow Jones              10,512.78    10,416.67       +.92% 
 NASD Comp               2,066.33     2,029.07      +1.84% 
 Russell 2000              487.15       485.01       +.44% 
 SOX Index                 641.06       601.67      +6.55% 
 Value Line                388.59       385.60       +.78% 
 MS Growth                 544.86       539.67       +.96% 
 MS Cyclical               568.95       561.43      +1.34% 
 T - Bill                    3.43%        3.46%      -3 BP 
 Long Bond                   5.58%        5.54%      +4 BP 
 Gold - Oz-Near Month     $270.80      $270.20       +$.60 
 Silver - Oz-Near Month     $4.23        $4.22       +$.01

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

Manufacturing Sector Still Weak, But Consumer Sector Solid
Consumer Drives Two Thirds Of Economic Activity
Don't Bet Against American Consumer - Recovery Still Likely


*Personal Income rose +.4% in June - Personal Spending
Rose +.3% - Both were ahead by +.1% of prior month

*Price Index for Personal Consumption Expenditures +.2%

*July Consumer Confidence eased to 116.5 from 118.9

*Chicago Purchasing Managers' Index fell to 38.0 in July
From June's 44.4 - Back to May level

*June Construction Spending fell -.7%

*Nat'l Purchasing Manages' Index eased to 43.6 in July
From 44.7 in June

*June Factory Orders fell -2.4% - Inventories down -.7%

*Jobless Claims fell -23,000 to 346,000 - Four Week
Moving Average down -14,500 to 395,250

*Labor Department Employment Report
- Unemployment Rate unchanged at 4.5%
- Nonfarm Payrolls fell -42,000
- Average Hourly Earnings rise $.04/hr to $14.35
- Average Workweek unchanged at 34.2 hours


Last week's reports continued to highlight the vast split
between the manufacturing sector and the consumer sector.
The former remains weak, although the auto sector and textile
industries make the data less reliable at this time of
year. But, the consumer continues to "carry the day."
And, in our view consumption spending will hold up, and
as the inventory adjustment runs its course, manufacturing
should pick up. Overall, we remain optimistic that a
recovery will begin late in the second half.

The "key" is clearly the consumer, and the news is good.
First, consumer confidence, though it eased, has held up
very, very well. The reason, in our view, is simply that
the labor markets have remained strong, and virtually anyone
who wants a job has one, as confirmed by the latest
Labor Department Report.

For instance, payrolls did not decline as much as the consensus
thought they would, and the decline was, again, concentrated
in manufacturing. The result was that the unemployment rate
was unchanged, versus a consensus estimate of an increase of
+.2% to 4.7%. The reason this is important is simply that
the "rate" will get the play in the media, and unchanged
is not a "depressing" bit of news to the consumer. So, the
odds of a sharp fall off in confidence diminish. And, as
longer term readers know, we firmly believe that if consumers
have both the confidence and income, they will spend, as they did
in June.

Clearly income has, and should continue to hold up well. Wages
are going up, and in fact the year-over-year increase was
up slightly to +4.4% - which doesn't thrill us, and serves as a
reminder that productivity improvement during the recovery will
be important. But, for the moment, wage increases, combined
with rebate checks, support consumer spending.

And, our assumption that rebate checks will be spent appears to
be holding up fairly well, at least according to WalMart. As
you may know, they have a program for cashing rebate checks,
and they have reported that they are in fact being spent. Given
the phased mailing, such spending support should run through
the end of next month.

One other point worth noting is that so far this year, payrolls
have risen, not by much, but up nonetheless. During recessions,
not surprisingly, payrolls decline. The point here is simply that
if the worst is behind us in terms of layoffs in the manufacturing
sector, and remember that labor markets lag, then there is still
more reason to believe that the important consumer sector will
hold up, and ultimately drive the economic recovery.

Obviously the manufacturing sector is still weak, but we don't
think the latest Purchasing Managers' data indicates a renewed
acceleration to the downside. In part, because the National
Index didn't change much, in part because of the timing problems
from the auto sector, and in part because inventories appear to be
being brought under control.

Excluding an exogenous event, then, our view remains the same.
A late second half recovery is likely, and by early-mid 2002,
growth should have returned to at least 3.0% and perhaps a
little better. It is still too early to declare victory for
the soft landing, but in our view it remains the best bet.

So, stay tuned !


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

Tuesday: Consumer Credit, Nonfarm Productivity Q2

Wednesday: FRB Beige Book

Thursday: Jobless Claims

Friday: Producer Price Index