F.GEMS: MICROS to GO!...

[Francois+Goelo]

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

WEEKLY UPDATE FOR: August 18, 2001 by Bob Bose

Prior Week in Review:

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

                        08/17/01     08/10/01     %Change 
  
 S&P 500                 1,161.97     1,190.16      -2.37% 
 Dow Jones              10,240.78    10,416.25      -1.69% 
 NASD Comp               1,867.01     1,956.47      -4.57% 
 Russell 2000              475.65       475.52       +.03% 
 SOX Index                 555.54       593.05      -6.33% 
 Value Line                373.82       378.67      -1.28% 
 MS Growth                 554.49       547.08      +1.35% 
 MS Cyclical               547.74       559.25      -2.06% 
 T - Bill                    3.29%        3.35%      -6 BP 
 Long Bond                   5.42%        5.53%     -11 BP 
 Gold - Oz-Near Month     $282.00      $276.80      +$5.20 
 Silver - Oz-Near Month     $4.27        $4.15       +$.12

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

Last Week's Data On The Surface Somewhat Mixed
Details, And Important Reports, Much More Positive
Nothing Changes Our Forecast For Late Second Half Recovery


*July Retail Sales unchanged - Ex Autos +.2%
June revised from +.2% to unchanged - See Below

*Business Inventories fell -.4% - Sales fell -1.4%
Inventory/Sales Ratio ticks up to 1.43 months

*July Industrial Production fell -.1% - Capacity
Utilization edged lower to 77.0% from 77.2%

*Jobless Claims fell -8,000 to 380,000 - Four Week
Moving Average down -9,250 to 370,750 - Five month low

*July Housing Starts rose +2.8% to 1.67 mil annual rate
But Housing Permits eased -1.8%

*July Consumer Price Index fell -.3% - Core Rate
Ex volatile food and energy rose +.2%

*August Philadelphia FRB Index fell to -23.5 from -12.2

*June Trade Deficit -$29.4 bil - In line with consensus

*Univ. of Michigan mid-month Consumer Sentiment 93.4
Up from July's 92.4 and consensus forecast of 92.0
Expectations rose to 101.7 from July's 98.6


Although there were a few soft spots in last week's
reports, on balance, in our opinion, the numbers were
pretty good. And, given the continued lack of any
buildup of inflationary pressures, it is about as good
a bet as one can make that the Federal Open Market
Committee (FOMC) will lower rates by one quarter of
one percent after their meeting on Tuesday. So, that
decision is already "priced into" the market. What
isn't "priced in" is the improving outlook for 2002.

First, the all important consumer continues to keep
the economy out of recession, although retail sales
were unchanged for July. However, gasoline is, not
too surprisingly, a decent component of retail sales,
and as we all know, the price of gasoline has been
falling sharply. The impact is not only that of a
modest tax cut, but also to suppress reported retail
sales growth. In other words, retail sales are
holding up quite well.

Friday's release of the Michigan Consumer Sentiment
Report was also a positive. Not only did it tick up,
versus a consensus expectation of a modest decline,
but the more forward looking expectations subcomponent
had a larger gain. Granted, it is only one data point,
but it is directionally important, and at the worst
implies that the outlook for consumer spending has
not deteriorated.

The manufacturing sector, which has been declining
sharply, may now be bottoming out. For instance,
while overall industrial production declined slightly
in July, manufacturing production was flat. And, then
there is the continuing improvement in the jobless
claims reports, as the less volatile four week moving
average is at a five month low, and as we noted last
week continues to contradict some of the Beige Book.

In part the explanation may lie in the continuing
decline in the manufacturing sector as a source of jobs,
as the service sector becomes increasingly important.
Or, it may simply be that the lagged impact of the
labor markets is beginning to decelerate. In any
case, we are not trying to assert that all is well
in the manufacturing sector, or that the unemployment
rate won't rise further - it will.

Our view is that the economy continues to bounce along the
bottom, at virtually zero growth. But, it seems quite
likely that consumers will not precipitate an acceleration
to the downside, and that the stimulative impact of prior
monetary easing, and the current tax refund, will produce
the desired recovery beginning later this year.

And, the FOMC will take out an "insurance policy" next
week. It may not help the financial markets near term,
but our view remains that the key driver for the stock
market should be the outlook for 2002. Barring some
exogenous event, a recovery toward trendline growth
beginning late this year, and accelerating in 2002, should
stabilize forecasts, and ultimately lead the stock
market higher.

Stay tuned !


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

Monday: Leading Economic Indicators

Tuesday: FOMC Meeting

Thursday: Jobless Claims, FOMC Minutes - June Meeting

Friday: Durable Goods Orders, New Home Sales