F.GEMS: MICROS to GO!...

[Francois+Goelo]

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

WEEKLY UPDATE FOR: April 28, 2001 by Bob Bose:

Prior Week in Review:

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

                        04/27/01     04/20/01     %Change 
  
 S&P 500                 1,253.05     1,242.97       +.81% 
 Dow Jones              10,810.00    10,579.80      +2.18% 
 NASD Comp               2,075.82     2,163.31      -4.04% 
 Russell 2000              483.97       466.72      +3.70% 
 SOX Index                 642.74       669.50      -4.00% 
 Value Line                392.00       385.54      +1.68% 
 MS Growth                 550.61       531.11      +3.67% 
 MS Cyclical               545.27       534.01      +2.11% 
 T - Bill                    3.74%        3.71%      +3 BP 
 Long Bond                   5.79%        5.78%      +1 BP 
 Gold - Oz-Near Month     $264.30      $265.40      -$1.10 
 Silver - Oz-Near Month     $4.40        $4.44       -$.04

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

First Quarter Gross Domestic Product (GDP) Quite Good
Accelerates From Fourth Quarter - Recession Now Unlikely
Our View Still For Recovery In Second Half

*April Consumer Confidence fell to 109.2

*Durable Goods Orders in March rose +3.0% - Excluding
Volatile Transportation sector orders fell -1.8%

*March New Home Sales rose +4.2% - Existing Home
Sales rose +4.8% - February also revised upward

*Jobless Claims rose +18,000 to 408,000 - Four Week
Moving Average rose +12,250 to 394,500 - Largest
Weekly increase since October, 1992

*Employment Cost Index rose +1.1% in 1st Qtr -
Up +4.1% year-over-year - An acceleration from 4th Qtr

*1st Qtr GDP rose +2.0% - An acceleration from 4th Qtr
Personal Consumption Price Index at +3.3% rate - Up
From 4th Qtr rate of +1.9%

*Univ. of Michigan Consumer Sentiment fell to 88.4 from end
Of March level of 91.5 - But slight bounce from mid-month


It does seem too early to declare victory for the Federal
Reserve Board's monetary policy, but the odds of a recession
have been seriously reduced given the quite positive first
quarter GDP report. Clearly the initial report is subject to
large revisions, but a revision into negative territory would
be a stretch. Therefore, an official recession would require
negative "growth" in the second and third quarters - an unlikely
outcome in our view given prior interest rate cuts and a more
stimulative fiscal policy. That's the good news.

The bad news is that the same GDP report noted a pickup in
inflationary pressures as the personal consumption price
index accelerated quite markedly from the fourth quarter rate.
In addition, the Federal Open Market Committee (FOMC) also
pays quite a bit of attention to the Employment Cost Index (ECI)
which rose at a +4.1% year-over-year rate for the first quarter.
It is these types of pressures that we had in mind when we noted
last week that the FOMC's intermeeting move contained some risks.

One other point worth noting is that the Money Supply has been
growing at an extremely rapid rate. In this day and age not
many folks pay attention to the money supply data like they used
to, but the liquidity being supplied by the FRB is significant.
Clearly the pace can slow, but my point is that they are
pulling out all the stops to avert a recession, and appear to
have succeeded. But, in my view, not without incurring some
risk that inflationary pressures will accelerate.

In other words, it is not a given that the FOMC will lower
rates by a half point, or at all, at their May meeting. Whether
they do or not, and if so to what extent, will now depend upon
forthcoming reports - particularly those providing price
information, such as this coming Friday's Labor Department Report.
And, there is the potential for a positive report.

First, jobless claims have clearly been on a strong uptrend, so
it almost doesn't matter the specific date the survey was taken,
there should be an underlying bias toward continued softness.
And second, beginning of the year price pressures should be
out-of-the-way. In other words, pay raises that kick in at the
first of the year, making comparisons more difficult, should no
longer distort the data. Hopefully then, average hourly earnings
will not break out of their recent band, taking some pressure
off the FOMC.

Going forward, the slide in consumer confidence, and the likely
continuing rise in the unemployment rate, should mitigate wage
demands. And, of course, if the economy does reaccelerate, then
the FOMC will be more likely to use a higher assumption for
productivity growth, so they will tolerate higher wage growth
before being concerned about inflationary pressures.

Simply put, we do not want to be alarmist, but we do want to make
certain that given all the "recession talk", investors understand
that we have not entered a risk free nirvana. The FOMC has been
very, very aggressive in trying to avoid a recession. They appear
to have succeeded. If we have a non "V" recovery (still the best
bet), then inflationary pressures should be contained.

Our concern is that if we, and virtually everyone else, are wrong,
and the recovery is sharp, then inflationary pressures could
build. Stay tuned, the "all clear signal" has not yet been rung !


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

Monday: Personal Income/Spending, Chicago Purchasing Managers' Index

Tuesday: Nat'l Purchasing Managers' Index, Construction Spending

Wednesday: Factory Orders, FRB Beige Book

Thursday: Jobless Claims

Friday: Labor Department Employment Report