Banc of America Capital Management Releases 'U.S. Economic Projections' For Week of December 9, 2002
PR Newswire - Friday, December 06, 2002
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Note to editor: The "U.S. Economic Projections" report that follows is written each week by Lynn Reaser, Ph.D., chief economist and senior market strategist for Banc of America Capital Management. The report is a publication of Banc of America Capital Management, which is the primary investment management group of Bank of America. Banc of America Capital Management develops investment management products and services for distribution to individual and institutional clients, and advised more than $260 billion in assets as of June 30, 2002.
NEW YORK/ST. LOUIS and CHARLOTTE, N.C., Dec. 6 /PRNewswire/ -- Banc of America Capital Management today released the latest 'U.S. Economic Projections' report:
For Week of December 9, 2002
Snow Falls on Jobs Report
CURRENT MARKET FOCUS
Just as it seemed that U.S. economic weather might be slowly improving, a blanket of snow dropped on the job market during November. The Bureau of Labor Statistics reported that nonfarm employment fell by 40,000 last month, while the jobless rate climbed from 5.7% to 6.0%.
Statistically, the ice is not as thick as it appears on the surface. With a payroll base of nearly 131 million, last month's 40,000 loss represents little change, a trend that has now persisted for three months in a row. The jump in the jobless rate also probably exaggerated the actual deterioration in the labor market last month, although the underlying unemployment rate is probably between 5.8% and 5.9%.
Nevertheless, the job market is cold. Manufacturers were still slashing payrolls in November and retailers hired many fewer workers than normal. Phone companies, gas and electric utilities, and brokerage firms cut back on their staffs. Demand for temporary help also dropped for the second consecutive month after gains earlier this year.
Fortunately, the economy had a few warmer climes. Mortgage bankers expanded payrolls to handle the surge in refinancing, while insurance, health care, private education, management consulting, and the government all provided some insulation with new hires.
THE WEEK AHEAD
Look for the week ahead to provide some relief from Friday's frosty economic news. Consumers should take some of the chill out of the air with a moderate gain in November's retail sales. Also anticipate some further improvement in the University of Michigan's survey of consumer confidence in the early report for December.
Do not expect the Federal Reserve to immediately clear the roads with another interest-rate cut. Rather, after November's aggressive 50-basis point easing, policymakers are more likely to allow additional time for the latest easing to melt some of the ice.
Inflation news should not portend any new storms. A drop in energy costs should reverse some of October's 1.1% spike in producer prices. Meanwhile, anticipate only a small rise in "core" producer prices (excluding food and energy). OPEC's meeting in Vienna this coming week also will probably cause little change in oil prices as member countries have continued to exceed quotas during recent months.
THE STOCK MARKET
Stock investors despaired at seeing new frost form on the windows of the economy during the past week. In response, all three of the major indices -- the Dow Jones Industrial Average, the S&P 500 Index and Nasdaq -- headed south for the week. For the Dow, this represents a disappointing setback following eight consecutive weeks of gains.
During the weeks ahead, investors will monitor the weather on four different channels: the economy, corporate earnings guidance, the weapons inspections process in Iraq, and the Bush administration's economic policy agenda.
Retail sales and consumer confidence will provide next week's key barometer readings on the economy and should be modestly favorable. On the other hand, many of the earnings preannouncements made early in the quarter tend to be negative.
The United Nations has set a deadline of Sunday for Iraq to list its weapons of mass destruction. Although the United States remains skeptical of Iraq's willingness to disarm, it probably will wait for more information as it works for wider support from its allies.
Investors will also watch the development of the administration's tax package as well as the realignment of the economics team following Friday's resignations of Treasury Secretary Paul O'Neill and chief White House economic adviser Lawrence Lindsey. The latest signs of economic weakening are likely to advance the case for additional tax cuts in 2003.
THE BOND MARKET
Bond investors greeted the latest economic snowdrifts with the glee of children enjoying a day off school. Yields on 10-year U.S. Treasury notes receded from 4.22% a week ago to 4.11% on Friday. Yields traded around 4.0% following release of the jobs numbers, but then moved higher with expectations of a new economics team and more fiscal stimulus in 2003.
Bond investors will focus on the language of the Federal Reserve's policy statement on Tuesday. Do not expect a major change from the last statement which suggested that, given the current stimulus and sound productivity trends, the risks of recession versus inflation are relatively balanced. Monetary officials might fear that a policy shift toward a more negative bias might alarm both the public and investors.
Indicators to watch
Indicator FOMC Meeting
Release Date Tuesday, December 10, 2:15 p.m. EST
Comments Following the aggressive interest-rate cut at November's
meeting, look for policymakers to hold the target federal
funds rate steady at 1.25%. Expect the accompanying
statement to repeat last meeting's view that the risks
between economic weakness and upward pressure on prices
are roughly balanced.
Indicator Initial Claims for Unemployment Insurance - week ended
12/7/02
Release Date Thursday, December 12, 8:30 a.m. EST
Prior Week 355,000
Forecast 365,000 (360,000 to 370,000 range)
Comments The Thanksgiving holiday probably distorted jobless claims
last week, but weather will again be a factor in the
upcoming data. Winter weather no doubt caused some job
losses, although weather probably also prevented potential
claimants from filing for benefits. Nevertheless, the
recent trend suggests a gradual easing in layoffs from the
levels seen last fall.
Indicator Retail Sales - November
Release Date Thursday, December 12, 8:30 a.m. EST
October 0.0%
Forecast 0.6% (0.4% to 0.7% range)
Comments Anticipate an increase in auto sales to boost the overall
total after depressing monthly performance in the prior
two months. Excluding autos, expect sales to rise a
relatively modest 0.3% after October's 0.7% surge.
Consumer spending still seems on track to register at
least a satisfactory performance over the holidays.
Indicator Business Inventories - October
Release Date Friday, December 13, 8:30 a.m. EST
September 0.6%
Forecast 0.1% (0.0% to 0.2% range)
Comments Look for only a small increase in inventories for October
following September's large advance. Many companies
stockpiled goods prior to the lockout of West Coast dock
workers and then faced disruptions of shipments during
October.
Indicator Producer Prices - November
Release Date Friday, December 13, 8:30 a.m. EST
October 1.1%
Forecast -0.2% (-0.3% to 0.0% range)
Comments Following October's sharp jump in producer prices, expect
significant relief during November. Lower crude oil
prices should have driven energy prices down. At the same
time, renewed discounting of car prices likely helped cool
the rise in "core" producer prices (excluding food and
energy) from 0.5% to a miniscule 0.1% in November.
Indicator Consumer Confidence (University of Michigan Preliminary) -
December
Release Date Friday, December 13, 8:30 a.m. EST
November 84.2
Forecast 85.0 (84.8 to 85.3 range)
Comments Although consumers remain cautious, look for a further
slight improvement in confidence as individuals sense that
the worst of the downturn is now behind us and that
conditions will improve in 2003.
Economic Forecasts
2002Q1 2002Q2 2002Q3 2002Q4f 2003Q1f 2003Q2f 2002f 2003f
Real GDP (% chg. annual
rate) 5.0 1.3 4.0 1.3 2.6 3.5 2.4 2.8
CPI (% chg.
annual rate) 1.4 3.4 1.9 2.5 2.3 2.4 1.6 2.4
Personal Consumption
Price Index
(% chg. annual
rate) 1.1 2.7 1.9 2.7 2.2 2.3 1.4 2.3
S&P 500 Operating
Earnings ($
per share) 11.29 12.35 12.35 12.50 12.75 13.50 48.50 55.00
Federal Funds
Rate (%, end
of period) 1.75 1.75 1.75 1.25 1.25 1.75 1.25 2.75
10-Year Treasury
Note Yield (%,
end of
period) 5.42 4.86 3.93 4.20 4.35 4.50 4.20 5.10
Euro ($/euro,
end of
period) 0.87 0.99 0.99 0.99 0.98 0.98 0.99 0.99
Yen (yen/$,
end of
period) 133 119 122 124 126 125 124 124
The information and data provided in this analysis are derived from sources that we deem to be reliable and accurate. Any opinions expressed are strictly the opinion of Banc of America Capital Management and are subject to change without notice.
Banc of America Capital Management provides access to extensive investment expertise, which is available within its own organization, as well as through strategic affiliations. Banc of America Capital Management offers the following:
* investment advisory services for many institutional client types, including, but not limited to: corporations, municipalities, foundations and universities.
* a broad range of investment options and services, including establishing asset allocation models for institutional portfolios; managing investments in stocks, bonds, and cash; and serving as the investment sub-adviser to many of the Nations Funds, a mutual fund family with more than $141 billion in assets as of June 30, 2002.
* experienced analysts and strategists who provide expert insight into the economy, businesses, and financial markets. This professionalism and expertise is put to work on behalf of clients in the most effective ways possible.
Lynn Reaser, Ph.D.
Chief Economist & Senior Market Strategist
Banc of America Capital Management
December 6, 2002
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SOURCE Banc of America Capital Management
/CONTACT: broadcast, Donya Hengehold of Banc of America Capital Management, +1-314-466-3928, or print, Jennifer Tice of Bank of America, +1-212-933-2559/
/Web site: bankofamerica.com / |
