***¶***Weekly Economic Indicators Update: September 1.... WEEKLY UPDATE FOR: September 1, 2001 by Bob Bose
Prior Week in Review: Financial Market Highlights:
08/31/01 08/24/01 %Change
S&P 500 1,133.58 1,184.93 -4.33%
Dow Jones 9,949.75 10,423.17 -4.54%
NASD Comp 1,805.43 1,916.80 -5.81%
Russell 2000 468.56 480.81 -2.55%
SOX Index 562.72 594.91 -5.41%
Value Line 368.69 378.25 -2.53%
MS Growth 549.45 564.75 -2.71%
MS Cyclical 539.24 556.21 -3.05%
T - Bill 3.28% 3.33% -5 BP
Long Bond 5.37% 5.44% -7 BP
Gold - Oz-Near Month $276.50 $274.90 +$1.60
Silver - Oz-Near Month $4.21 $4.19 +$.02 Economic News:
Last Week's Market Reaction To Data A Gross Overreaction
Consumer Confidence Not Falling Apart - Just Easing
Late Second Half Recovery On Track - Led By The Consumer
*Existing Home Sales fell -3.0% in July - Below consensus
*Consumer Confidence eased to 114.3 in August from
*2nd Qtr Gross Domestic Product (GDP) revised to +.2%
*Jobless Claims eased -1,000 to 399,000 - Four Week
Moving Average rose +12,500 to 393,000
*July Consumer Spending rose just +.1% - Personal Income +.5%
*Factory Orders for July rose +.1% - Above consensus
*Univ. of Michigan August Consumer Sentiment eased to 91.5
July level 92.4 - Mid August was 93.4
*Chicago Purchasing Managers' Index rose to 43.5 versus
Expectations of 40.0
Last week we had commented that we thought the Federal Open
Market Committee (FOMC) made a mistake when they
announced the results of their meeting. The intense focus
on only modest signs of weakness in last week's data
reinforces our view. In very short order, the "Greenspan
Put" is being tested.
For those of you that haven't been subscribers for long,
the notion of the "Greenspan Put" is simply that the
FOMC has come to the rescue of recent market breaks by
lowering rates rapidly, thereby bailing out investors.
Sort of the equivalent of being long a put option.
The rationale for the FOMC is simply that they are big
believers in the "wealth effect" which assumes a tight,
and significant linkage between changes in net worth
and consumer spending. We are much bigger believers in
the "income effect", and were therefore pleased with the
July Personal Income report. And, as longer term
subscribers know, we firmly believe that if the American
consumer has the wherewithal (i.e. income) and the
confidence, they will spend. At the moment, confidence
is the key issue.
Clearly consumer confidence softened a bit in August,
but we would emphasize that the change was modest, and
a rather typical, and lagged, response to the increase in
the unemployment rate. And, as the unemployment rate is
a lagging indicator, and very likely to move higher, we
would also expect consumer confidence to soften further.
But, and this is a big but, soften is not the same as
a collapse that then severely impacts consumer spending
as some market participants last week believed.
For instance, the same day that the consumer confidence
report was released, Investors' Business Daily reported
that Wal-Mart's August sales were above plan, and they
had been projecting year-over-year gains of 4% - 6%.
And, the very next article noted that other major
retailers were " ... largely on plan." Although it should
be obvious, although anecdotal evidence, these results
are more "current" than the official "Consumer Spending"
report released last Thursday, and support our belief that
the slight softening in consumer confidence will not
lead to an acceleration to the downside in spending.
Further support for our view was the revision to 2nd Qtr
GDP. As noted above, the revision was downward, but not
into negative territory. While the final revision could
go negative, what really is important is not plus/minus
a few tenths of one percent in old data. What counts is
that the downward revision was heavily concentrated in
inventories and trade. Obviously the reduction in
inventories helps clear the "pipeline" for the resumption
of production growth.
And, while the media may try to put a negative spin on it,
Friday's "manufacturing oriented" reports were both better
than expected. Obviously we would like confirmation of the
Chicago Purchasing Managers' Index next week, but for now
the evidence supports our view that bouncing along the
bottom is different than the FOMC view that there remain
significant risks to the downside.
Not surprisingly, we haven't changed our view for a late
second half recovery, that accelerates into 2002. At
current levels, even the Federal Reserve Board's "valuation
model" is positive, supporting our view that last week's
selloff, and the month of August for that matter, were an
overreaction to very short term economic softness.
Stay tuned, volatility will be with us for quite some time ! Current Weekly Calendar of Economic Data:
Monday: LABOR DAY HOLIDAY - FINANCIAL MARKETS CLOSED
Tuesday: Construction Spending, National Assn. of Purchasing Managers' Index
Wednesday: Revised 2nd Qtr Productivity
Thursday: Jobless Claims
Friday: Labor Department Employment Report, Wholesale Trade