Consumers, Factories In Reverse

Evidence Of Consumers, Factories In Reverse

By Investor's Business Daily | 19 February 2008

(Investor's Business Daily, Feb. 19, 2008)— Factories are in retreat, consumers are losing hope and a leading U.S. index falls deeper into recessionary territory, according to separate gloomy reports out Friday.

New York Fed's Empire State mfg index fell to -11.72 in February, the lowest since April 2003, from 9.03 in January. Wall Street expected 7. Readings below zero signal contraction. The volatile index doesn't always match more-established factory data, but it gives an early peek into monthly economic conditions. Other timely data were bearish, too. The Reuters/University of Michigan consumer sentiment index dropped 8.8 points to 69.6, the lowest since February 1992. Falling home and stock prices, declining jobs and soaring food and energy costs are taking a toll.

The IBD/TIPP Economic Optimism Index, released earlier in the week, showed confidence improving but still very negative. "The consumer is screaming that they need help," said Lakshman Achuthan, managing director of the Economic Cycle Research Institute. ECRI's leading U.S. index edged down 0.1 point to 133.4 in the week ended Feb. 8. But the annualized growth rate sank to -9.1%, the lowest since the 2001 recession. But ECRI isn't quite ready to call an end to the six-year expansion.

Industrial output rose just 0.1% in January, the Federal Reserve said Friday, in line with views. Utility and tech strength overcame housing and auto weakness. The slim gain in production "is the latest in a string of mixed economic reports that point to an economy that is wobbling but still not falling over dead," Stuart Hoffman, chief economist at PNC Financial, said in a note. Stocks fell on the day's data but rallied late. The Nasdaq closed down 0.5% and the Dow 0.2%. The S&P 500 ended 0.1% higher.

Futures traders unanimously expect the Fed to cut interest rates by 50 basis points to 2.5% at its March 18 meeting. And there's a decent bet that it'll cut by 75 basis points. Fed chief Ben Bernanke said last week the central bank will "act in a timely manner" to head off recession. But he still sees growth and expects it to pick up later in the year. That sowed confusion over how aggressive the Fed will be.

Some analysts say policymakers need to be more active. "They don't realize that the ground is kind of softening right under our feet," Achuthan said. "We haven't had a recession yet but that doesn't mean they don't have to worry." Meanwhile, January import prices rose 1.7% on soaring oil costs, the Labor Department said Friday. Prices jumped 13.7% vs. last year, the most since Labor began tracking the data in 1982. Import prices ex oil rose 0.6% vs. December and 3.6% over last year. Chinese goods prices posted record monthly and yearly gains.

Some economists fear that high energy costs and a weaker dollar will fuel an upsurge in inflation. But many say a weak economy should keep inflation under wraps. "Consumers are losing the battle at the gas pump and import prices are rising, but we're winning the war on inflation at the check-out counter," Achuthan said, noting that [even] Wal-Mart (NYSE:WMT) has been cutting prices to counter weak demand.

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Normxxx    
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