Eliska
01.05.2001, 10:04
By Rebecca Thomas
THE GOOD NEWS is, the economy's glass is half full. The bad news: It's still half empty.
On Friday morning, the Commerce Department reported that gross domestic product, the measure of the nation's total output of goods and services, climbed at a 2% annual rate in the first quarter. That was up from a meager 1% pace in the fourth quarter of last year but still well below the 4.8% rate recorded a year ago. A consensus of economists had expected first-quarter GDP to grow by 1%.
The latest numbers suggest that the economy, though limping, hasn't yet collapsed. "I think you can safely say, based on this number that we have clearly avoided a recession," says David Jones, chief economist at Aubrey G. Lanston. (The standard definition of a recession is two consecutive quarters of negative growth.)
That's just what investors wanted to hear. The Dow Jones Industrial Average sprung 117.70 points higher Friday to close the week at 10810.05. The Nasdaq Composite rose 40.95 points to 2075.85, and the broader Standard & Poor's 500 index closed up 18.55 points at 1253.07.
But don't put these economic numbers in the bank just yet. The latest GDP figures will be revised twice as more data from March come in. The Commerce Department predicts that the final number will fall between 1.4% and 2.9% growth. But since the first quarter turned weaker as it went along, John Hancock Financial Services Chief Economist Bill Cheney presumes the revisions will be to the downside. "I suspect that these guys just guessed higher than the rest of us on the missing [March] data," he says.
Even if that's the case, the healthy acceleration in consumer spending can't be dismissed. Personal expenditures rose at a 3.1% annual rate, up from 2.8% in the final quarter of 2000. Spending on big-ticket durable goods including automobiles rose 11.9%, after declining by 3.1% in the previous quarter. Nondurable and services expenditures edged up 2.6% and 1.7%, respectively.
Improvement in the nation's trade deficit — spurred by a reduction in domestic demand for foreign goods — also helped buoy growth. Imports decreased by 10.4% during the quarter, while exports fell by 2.2% in the first quarter. The net result: an addition of 1.4% to first-quarter GDP growth, according to the Commerce Department.
The biggest surprise in the report was that business investment was also up. Because of higher spending on construction and transportation equipment, that figure edged up 1.1%, after falling by 0.1% in the fourth quarter. But don't start the high-fiving just yet. Business spending on equipment such as computers and software fell by 2.1%, and overall spending on investment technology slid at a 6.4% rate — the biggest drop in 20 years and the first decline in 10 years, according to Merrill Lynch Chief Economist Bruce Steinberg. Still, businesses are reducing excess inventories, which paves the way for a resumption of production. Inventories fell by $7.1 billion after rising by $55.7 billion in the fourth quarter and $72.5 billion in the third. This adjustment process, which subtracted 2.5% from GDP growth, isn't likely to be as much of a drag in the coming quarters, economists say.
While Wall Street was encouraged by the first-quarter report, economists continue to stress that there's some downside risk in the near term. "[The report is] reassuring in the sense that the economy isn't falling apart…but it shouldn't be used to say that the threat is over," says David Orr, chief economist at First Union Capital Markets. Jones thinks growth will stall in the 1% to 2% range over the next two quarters before rebounding slightly at the end of the year. "We may not hit our stride [of 3.5% to 4% growth] until the second half of next year," he says.
His main concern: that the dismal state of corporate bottom lines will ultimately cast gloom over the consumer sector. There's simply no way, say he and other experts, that consumer spending — the last bastion of relative economic strength — will remain sturdy if businesses continue cutting jobs in an effort to salvage profit margins. (Profits probably declined by 8.4% in the first quarter and are likely to slip by 10.7% in the second, according to earnings-tracker Thomson Financial/First Call. And the profits recession isn't likely to end before the fourth quarter, at the earliest.) "If layoffs mount and payrolls begin to contract sharply, consumer spending will weaken further," notes Steinberg. Echoes Jones: "The question is, can you complete this business-led correction without severely depressing consumer sentiment and spending?"
Recent data suggest not. Early Friday, the University of Michigan reported that its reading of consumer sentiment fell to 88.4 in April from 91.5 in March, as individuals became less sanguine about both current and future conditions. Though the reading was a slight improvement over a preliminary estimate released two weeks ago, it was still the worst figure in more than seven years. The erosion in confidence hardly comes as a surprise, given that claims for unemployment insurance are currently at a five-year high and that personal income is on the decline. "Every fundamental for the consumer is deteriorating," says Pierre Ellis, managing director and senior economist at Decision Economics, an economics consultancy. "There's no indication of momentum."
With any luck, though, the Federal Reserve's aggressive campaign to prevent a recession will limit the damage. The cumulative two-percentage-point reduction in rates this year has yet to really kick in, and economists believe more easing is on the horizon. A majority still figures that policy makers will lower rates by another quarter or half point at their next scheduled policy meeting on May 15. Says Orr: "The Fed will keep easing until the trend of initial jobless claims stops going up and CEOs get some indication that profits are beginning to stabilize."
In other words, help is on the way.
The Economy Archive
Quelle: http.//smartmoney.com
THE GOOD NEWS is, the economy's glass is half full. The bad news: It's still half empty.
On Friday morning, the Commerce Department reported that gross domestic product, the measure of the nation's total output of goods and services, climbed at a 2% annual rate in the first quarter. That was up from a meager 1% pace in the fourth quarter of last year but still well below the 4.8% rate recorded a year ago. A consensus of economists had expected first-quarter GDP to grow by 1%.
The latest numbers suggest that the economy, though limping, hasn't yet collapsed. "I think you can safely say, based on this number that we have clearly avoided a recession," says David Jones, chief economist at Aubrey G. Lanston. (The standard definition of a recession is two consecutive quarters of negative growth.)
That's just what investors wanted to hear. The Dow Jones Industrial Average sprung 117.70 points higher Friday to close the week at 10810.05. The Nasdaq Composite rose 40.95 points to 2075.85, and the broader Standard & Poor's 500 index closed up 18.55 points at 1253.07.
But don't put these economic numbers in the bank just yet. The latest GDP figures will be revised twice as more data from March come in. The Commerce Department predicts that the final number will fall between 1.4% and 2.9% growth. But since the first quarter turned weaker as it went along, John Hancock Financial Services Chief Economist Bill Cheney presumes the revisions will be to the downside. "I suspect that these guys just guessed higher than the rest of us on the missing [March] data," he says.
Even if that's the case, the healthy acceleration in consumer spending can't be dismissed. Personal expenditures rose at a 3.1% annual rate, up from 2.8% in the final quarter of 2000. Spending on big-ticket durable goods including automobiles rose 11.9%, after declining by 3.1% in the previous quarter. Nondurable and services expenditures edged up 2.6% and 1.7%, respectively.
Improvement in the nation's trade deficit — spurred by a reduction in domestic demand for foreign goods — also helped buoy growth. Imports decreased by 10.4% during the quarter, while exports fell by 2.2% in the first quarter. The net result: an addition of 1.4% to first-quarter GDP growth, according to the Commerce Department.
The biggest surprise in the report was that business investment was also up. Because of higher spending on construction and transportation equipment, that figure edged up 1.1%, after falling by 0.1% in the fourth quarter. But don't start the high-fiving just yet. Business spending on equipment such as computers and software fell by 2.1%, and overall spending on investment technology slid at a 6.4% rate — the biggest drop in 20 years and the first decline in 10 years, according to Merrill Lynch Chief Economist Bruce Steinberg. Still, businesses are reducing excess inventories, which paves the way for a resumption of production. Inventories fell by $7.1 billion after rising by $55.7 billion in the fourth quarter and $72.5 billion in the third. This adjustment process, which subtracted 2.5% from GDP growth, isn't likely to be as much of a drag in the coming quarters, economists say.
While Wall Street was encouraged by the first-quarter report, economists continue to stress that there's some downside risk in the near term. "[The report is] reassuring in the sense that the economy isn't falling apart…but it shouldn't be used to say that the threat is over," says David Orr, chief economist at First Union Capital Markets. Jones thinks growth will stall in the 1% to 2% range over the next two quarters before rebounding slightly at the end of the year. "We may not hit our stride [of 3.5% to 4% growth] until the second half of next year," he says.
His main concern: that the dismal state of corporate bottom lines will ultimately cast gloom over the consumer sector. There's simply no way, say he and other experts, that consumer spending — the last bastion of relative economic strength — will remain sturdy if businesses continue cutting jobs in an effort to salvage profit margins. (Profits probably declined by 8.4% in the first quarter and are likely to slip by 10.7% in the second, according to earnings-tracker Thomson Financial/First Call. And the profits recession isn't likely to end before the fourth quarter, at the earliest.) "If layoffs mount and payrolls begin to contract sharply, consumer spending will weaken further," notes Steinberg. Echoes Jones: "The question is, can you complete this business-led correction without severely depressing consumer sentiment and spending?"
Recent data suggest not. Early Friday, the University of Michigan reported that its reading of consumer sentiment fell to 88.4 in April from 91.5 in March, as individuals became less sanguine about both current and future conditions. Though the reading was a slight improvement over a preliminary estimate released two weeks ago, it was still the worst figure in more than seven years. The erosion in confidence hardly comes as a surprise, given that claims for unemployment insurance are currently at a five-year high and that personal income is on the decline. "Every fundamental for the consumer is deteriorating," says Pierre Ellis, managing director and senior economist at Decision Economics, an economics consultancy. "There's no indication of momentum."
With any luck, though, the Federal Reserve's aggressive campaign to prevent a recession will limit the damage. The cumulative two-percentage-point reduction in rates this year has yet to really kick in, and economists believe more easing is on the horizon. A majority still figures that policy makers will lower rates by another quarter or half point at their next scheduled policy meeting on May 15. Says Orr: "The Fed will keep easing until the trend of initial jobless claims stops going up and CEOs get some indication that profits are beginning to stabilize."
In other words, help is on the way.
The Economy Archive
Quelle: http.//smartmoney.com