ECONOMY WATCH
1. CONSUMER SPENDING NOTCHES A SLIGHT INCREASE
The Commerce Department reported on Monday that consumer spending ticked
up 0.1% in March, ending a two-month losing streak. Disposable incomes,
meanwhile, remained flat after declining 0.3% in the previous month.
Without adjusting for inflation, spending and incomes both rose 0.4%,
meeting economists' expectations. But this just fills in the details
missing from last week's woeful GDP report. We already knew that spending
was weak, so this didn't have much of an effect on the market.
2. LABOR COSTS RISE
The Labor Department reported on Tuesday that U.S. labor costs rose 1.3%
in the first quarter of 2003, its largest increase since the second
quarter of 1990. Economists expected a mere 0.8% rise in employment
costs. The 2.2% increase in benefit costs contributed largely to cost
surge. Wages and salaries rose 1% for the quarter, their largest rise in
two years. Wage increases in the Finance, Insurance, and Real Estate
sectors were especially pronounced. So it seems that the consumers lucky
enough to have jobs are getting paid more than they were last year. Maybe
it's time to spread the wealth. But this isn't good news on a business
spending perspective, as higher labor costs keep company funds away from
business investments.
3. PRODUCTIVITY SLOWS DOWN
Productivity increased at a mere 1.6% annualized rate in the first
quarter, according to the Labor Department on Thursday. Although
productivity rose a robust 4.8% in 2002, the rate slowed to 2.3% in the
fourth quarter of the year. Economists expected the number to taper off a
bit from that rate, to 2.2%. But they got more than they bargained for,
and the lower productivity gains led to just a 1.4% increase in output --
the slowest growth rate in a year.
4. JOBLESS RATE HITS 6%
The Labor Department reported on Friday a rise in the unemployment rate
from 5.8% to 6.0% in April, surprising economists expecting a 5.9% figure.
Interestingly enough, however, a less-than-expected 48,000 jobs were lost
in the month, far fewer than the 475,000 losses over the last two months
combined. Despite this disappointing report, stocks rallied sharply.
What this suggests is that investors stressed the fact that this report
measured the pre-war economy. Now that the conflict is over, many people
hope that companies will ramp up their hiring.
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