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

WEEKLY UPDATE FOR: February 3, 2001 by Bob Bose

Prior Week in Review:

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

                        02/02/01     01/26/01     %Change

S&P 500 1,349.47 1,354.95 -.40%
Dow Jones 10,864.10 10,659.90 +1.92%
NASD Comp 2,660.51 2,781.30 -4.34%
Russell 2000 501.03 498.69 +.47%
SOX Index 687.46 692.41 -.72%
Value Line 417.34 414.12 +.78%
MS Growth 590.58 576.58 +2.40%
MS Cyclical 530.08 513.10 +3.31%
T - Bill 4.92% 5.04% -12 BP
Long Bond 5.50% 5.64% -14 BP
Gold - Oz-Near Month $269.30 $265.20 +$4.10
Silver - Oz-Near Month $4.79 $4.83 -$.04


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

FOMC Lowers Federal Funds and Discount Rate Half Point
Maintains Bias Toward Further Cuts - Confidence Crumbles
Our View Remains - Soft Landing Still Best Bet


*January Consumer Confidence collapses to 114.4 -
Severe drop from December's 128.6

*Chicago Purchasing Managers' Index fell to 40.2
From December's 44.7

*December New Home Sales rose +13.4% to 975,000

*Preliminary 4th Qtr GDP rose +1.4% - Slowest
Rate of Growth since 2nd Qtr 1995

*Federal Open Market Committee (FOMC) Lowers Rates
- Federal Funds drops one half point to 5.5%
- Symbolic Discount Rate cut one half point to 5.0%
- Easing Bias Also Maintained

*Jobless Claims rose +32,000 to 346,000 - Four Week
Moving Average fell -8,500 to 327,000

*December Construction Spending rose +.6% - Second
Consecutive Monthly Gain

*December Personal Income rose +.4% - Personal
Spending rose +.3%

*Auto Sales for January fell -6.2% - See Below

*December Factory Orders rose +1.1% - Without
Volatile aircraft orders - Orders Down -.8%

*Nat'l Assn. of Purchasing Managers' Index fell to 41.2

*Univ. of Michigan January Consumer Sentiment 94.7

*Labor Department Employment Report for January
- Unemployment Rate rose +.2% to 4.2%
- Nonfarm Payrolls up +268,000
- Average Hourly Earnings unchanged at $14.02
- Average Workweek up +.2/hr to 34.3 hours


Although we had originally expected the FOMC vote to
be a close call between a one quarter point or a half
point cut, consumer confidence, or more accurately lack
of it, made the decision a no-brainer. So, they cut
both the Federal Funds (i.e. overnight) rate and the
Discount Rate (i.e. at which the Fed lends to member
banks) by one half point. And, the Consumer Confidence
Report also supported the maintenance of the bias
toward further reductions if necessary.

In the statement released on Wednesday, the Fed noted
the impact of energy prices on consumer spending and
business profit margins. In addition, they referenced
new technologies, and the acceleration of responses
in reduced production to bring inventories in line.
And finally, the press release noted that the long term
advances in technology, and the gains in productivity,
"... exhibit few signs of abating ..." We concur. In
other words, we still believe a soft landing for the
economy is the most likely outcome.

For instance, Gross Domestic Product (GDP), according
to the preliminary report, grew +1.4% in the fourth
quarter. Clearly this is a continuation, and in fact
acceleration, of the second half slowdown. But, it is
still growth, and there were some positive aspects to
the report - the most important being that consumer
spending grew +2.9% in the fourth quarter.

More recently, and for big ticket items, auto sales
for January were better than expected. Granted they
declined -6.2%, but the annualized rate was still a
very strong 17.2 million, which was a notable increase
from December's 15.4 million rate. We don't want to
place too much emphasis on one report, given the problems
with seasonal adjustments at this time of year, and
December's weather, but the anecdotal evidence was
positive as well, and rebuts the extremely sharp
decline in consumer confidence.

Another slight positive was that the Michigan Consumer
Sentiment Index, released on Friday, was simply not as
negative as the Conference Board Survey. For instance,
on a month-to-month basis, January's level was
reported to be 94.7 versus 98.4 for December. Clearly
the decline is meaningful, but the worst might be behind
us. The final level for January is actually a slight
increase from the mid-month level of 93.6.

As longer term readers know, we believe, and apparently
the FOMC does too, if consumers have the funds and the
confidence to spend, they will. Clearly confidence
is somewhat shaken, even as the unemployment rate remains
very low, and therefore consumer income growth remains solid.
So, if confidence returns, spending should follow.

Net bottom line, in our view, is that confidence will
rebound, in part because of the FOMC's swift, and aggressive,
change in policy. Incomes will hold up well, so the
"pieces" will be back in place for consumption driven growth.

If we are right, the outcome will be a soft landing. The
key is confidence. Stay tuned !


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

Wednesday: 4th Qtr Productivity, Consumer Credit

Thursday: Jobless Claims, Wholesale Trade

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