Economic Week in Review: February 26-March 2, 2001
The day after Mardi Gras celebrations hit their peak, Federal Reserve
Board Chairman Alan Greenspan served up a sobering message to Congress-
-the economic slowdown "has yet to run its full course." However, he
showed no signs the Fed would act before its next meeting on March 20.
Stocks took the news poorly. For the week, the S&P 500 Index declined
1.0% to 1,234, and the yield of the 10-year U.S. Treasury note
fell 17 basis points to 4.93% (as of 4:30 p.m. Friday).
Mr. Greenspan said that although the economic slowdown could be
attributed in large part to companies' moves to cut production in
response to falling sales, other indicators pointed toward widespread
weakness. However, the Fed chairman also offered some positive
comments. He said that the economy's problems could prove
"limited," and that signs of weakness were less evident in January and
February than they were late in 2000. Many analysts are predicting
another interest rate cut when the Federal Open Market Committee meets
on March 20.
Consumer confidence fell for the fifth consecutive month in February,
reaching its lowest level since 1996. The Conference Board's consumer
confidence index is now more than 25% off its May 2000 peak. Mr.
Greenspan told Congress that "changes in consumer confidence will
require close scrutiny ... especially after the steep falloff of recent
months.” The drop in confidence is tied primarily to uncertainty about
the future--consumer expectations have now dropped to the level they
were in 1993, as the U.S. economy emerged from recession.
Consumers' assessment of present conditions, however, remains
relatively high.
The latest estimate of fourth-quarter economic growth showed that the
U.S. economy was expanding at its slowest pace since the second quarter
of 1995. The Commerce Department said that real (inflation-adjusted)
gross domestic product rose at an annual rate of 1.1%. (The agency's
previous estimate had pegged fourth-quarter GDP at 1.4%.) The downward
revision was due to weaker exports and to inventory accumulation. Also,
consumer spending increased at a 2.8% annual rate in the quarter,
considerably lower than its 4.5% third-quarter increase.
Manufacturing activity crept up in February to 41.9, but remains weak,
according to the National Association of Purchasing Management. The
NAPM index suggests that the manufacturing industry is in its seventh
straight month of contraction. (A reading below 50 indicates a
contraction in manufacturing activity; a reading above 50 indicates an
expansion.) In a related report, durable goods orders dropped 6% in
January. Aircraft bookings, which tend to pile up in December and then
pull back sharply in January, accounted for half of the decline.
Personal income--the money that households receive from wages,
dividends, interest, and Social Security benefits--rose 0.6% in
January, but personal spending rose even more, the Commerce Department
reported on Thursday. Growth in personal spending rose 0.7%; it hasn't
been this high since it reached 0.8% in September. Because the spending
increase outpaced the jump in income, the personal savings rate fell--
to a record low -1.0%. A negative savings rate suggests that consumers
are financing some of their purchases by borrowing money, drawing on
past savings, or selling assets.
New-home sales came in at an annual rate of 921,000 for January, a
near 11% decline from December's record pace of 1 million units, but
very strong regardless. Analysts said January's robust rate was partly
attributable to the decline in mortgage loan rates. (Interest rates on
30-year fixed-rate mortgages now average about 7%, down from 8.5% a
year ago, according to the Federal Home Loan Mortgage Corporation.)
Meanwhile, sales of existing homes fell in January to an annual rate of
4.65 million, the lowest level since January 2000.
Among the reports due in the coming week are releases on factory orders
and productivity (Tuesday), consumer credit and the Beige Book report
(Wednesday), and unemployment (Friday).
Summary of Major Economic Reports: February 26-March 2, 2001
-----------------------------------------------------------------------
|Date Report Actual Expected 10-Year S&P 500 |
| Value Value Note Yield Index |
|---------------------------------------------------------------------|
|February 26 Existing- 4.7 5.0 -7 bp +1.8% |
| Home million million |
| Sales, |
| (January |
| annualized) |
|---------------------------------------------------------------------|
|February 27 Consumer 106.8 110.5 |
| Confidence |
| (January) |
|---------------------------------------------------------------------|
| New-Home 921,000 925,000 |
| Sales |
| (January |
| annualized) |
|---------------------------------------------------------------------|
| Durable -6.0% -2.9% -8 bp -0.8% |
| Goods |
| (January) |
|---------------------------------------------------------------------|
|February 28 Real +1.1% +1.0% -5 bp -1.5% |
| Gross |
| Domestic |
| Product (4Q, |
| annual rate) |
|---------------------------------------------------------------------|
|March 1 Initial 372,000 350,000 |
| Jobless |
| Claims |
| (2/23) |
|---------------------------------------------------------------------|
| NAPM 41.9 42.0 |
| Index |
| (February) |
|---------------------------------------------------------------------|
| Construction +1.5% +0.5% |
| Spending |
| (January) |
|---------------------------------------------------------------------|
| Personal +0.6% +0.5% |
| Income |
| (January) |
|---------------------------------------------------------------------|
| Personal 0.7% +0.6% -3 bp +0.1% |
| Spending |
| (January) |
|---------------------------------------------------------------------|
|March 2 +6 bp -0.6% |
|---------------------------------------------------------------------|
| Weekly -17 bp -1.0% |
| Change |
-----------------------------------------------------------------------
bp = basis points.
Note: The economic statistics presented in this report are subject to
revision by the agencies that issue them. |
