Economic Week in Review: February 12-16, 2001
During January, the big market news was what Federal Reserve Board
Chairman Alan Greenspan was doing about the economic slowdown. But
during the second week of February, investors and economic observers
focused on what the Fed Chairman was saying about it. In testimony
before the Senate Banking Committee on Tuesday, the Fed Chairman said
that “downside risks predominate,” but added that the United States
clearly was not in a recession. He lowered the Fed’s forecasts for
growth and inflation, providing a clear signal that the Fed isn’t
finished cutting interest rates. It was a relatively uneventful week
in the financial markets. The S&P 500 Index rose 1.0% during the week
to about 1,302, and the yield of the 10-year U.S. Treasury note climbed
9 basis points to 5.11%.
Wholesale prices jumped 1.1% in January, registering their biggest
increase in more than a decade. Excluding the volatile food and energy
sectors, the Producer Price Index was up 0.7% for the month. A spike in
inflation could make it harder for the Fed to steer the economy away
from a recession. In January, the low level of inflation gave the Fed
room to cut interest rates. If inflation continues to accelerate, the
Fed will have a tougher time balancing the need to battle an economic
slowdown with the need to combat higher prices.
Retail sales rose a surprisingly strong 0.7% in January, the Commerce
Department announced on Tuesday. The figure, which represents quite a
rebound from the flat level of sales reported for December, was viewed
as a positive sign for the economy because consumer spending accounts
for nearly two-thirds of economic activity.
Business inventories rose a tiny 0.1% during December. Analysts said
the low growth rate reflected companies’ quick responses to the
economic slowdown. By cutting back on production, companies are trying
to ensure that goods don’t pile up in their warehouses and storeroom
shelves. A significant buildup in inventory often prompts a much
sharper production cutback that delivers a shock to the economy. In a
separate report, the Fed said industrial production--a measure of
output from factories, mines, and utilities--slipped 0.3% in January. A
big part of the decline occurred in the utilities sector, where
moderating temperatures and California’s power crisis reduced output.
The nation’s housing market continued to demonstrate surprising
stamina. Construction of new homes climbed at an annual rate of 1.65
million in January, the strongest performance since last spring. Lower
mortgages helped, as did better house-hunting weather in most of the
country.
Due for release during the holiday-shortened week ahead are reports on
the trade deficit and consumer prices (both on Wednesday) and on
leading economic indicators (Thursday). Government offices and
financial markets are closed on Monday for President’s Day.
Summary of Major Economic Reports: February 12-16, 2001
-----------------------------------------------------------------------
|Date Report Actual Expected 10-Year S&P 500|
| Value Value Note Yield Index |
|---------------------------------------------------------------------|
|February 12 +2 bp +1.2% |
|---------------------------------------------------------------------|
|February 13 Retail Sales +0.7% +0.5% +1 bp -0.8% |
| (January) |
|---------------------------------------------------------------------|
|February 14 Business +0.1% +0.2% +6 bp -0.2% |
| Inventories |
| (December) |
|---------------------------------------------------------------------|
|February 15 Initial 352,000 363,000 +6 bp +0.8% |
| Jobless |
| Claims (2/10) |
|---------------------------------------------------------------------|
|February 16 Producer +1.1% +0.3% |
| Price Index |
| (January) |
|---------------------------------------------------------------------|
| PPI, except +0.7% +0.1% |
| food and |
| energy (January) |
|---------------------------------------------------------------------|
| Industrial -0.3% +0.1% |
| Production |
| (January) |
|---------------------------------------------------------------------|
| Housing 1.65 1.58 -6 bp -1.9% |
| Starts million million |
| (January, |
| annualized) |
|---------------------------------------------------------------------|
| Weekly +9 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.
"Standard & Poor's(r)," "S&P(r)," "S&P 500(r)," "Standard & Poor's
500," and "500" are trademarks of The McGraw-Hill Companies, Inc.
(c) 2001 Vanguard Marketing Corporation, Distributor |
