The second point of view from some excerpts from Bond Talk. Da' bull argument.
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ECONOMY TALK: As with the Philly Fed survey, economists polled by the National Association for Business Economics are more upbeat, with panelists giving 60% odds that the recession is already over and just two of 37 forecasters predicting sustained growth will not resume until after the second quarter. In NABE's latest outlook survey, over 90% of the panelists expect the Fed to start tightening this year, but probably not before the second half. Panelists also believe that the long-term economic impact of the Sept. 11 terrorist attacks is likely to be minimal and more than 85% picked Japan as the country most likely to have the biggest negative impact on the U.S. growth over the next 12 months.
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ECONOMY TALK: The Philadelphia Fed survey was 16.0 in February versus 14.7 in January. Expectations were for a decline to 10.0. The "whisper" number, however, was for the index to hold steady or perhaps increase a bit. The index averaged about 11.0 during the expansion of the 1990s, so current levels are consistent with a solidly expanding economy. One interesting component was the index on the average workweek. It rose to -2.9 from -5.0 in January and is now at the highest level since November 2000. The increase means that the workweek is lengthening. The more it lengthens the more likely it is that manufacturers will either increase employment or reduce the pace of job losses. This is important because the manufacturing sector has averaged job losses of 109k per month over the past year, accounting for the bulk of job losses in the overall economy. Also interesting was the rise in the index on delivery time. It rose to 4.6 from -14.4 in January, the highest levels since October 2000, indicating that deliveries slowed during the month, likely to an increase in shipments. Also notable are the continued high levels of confidence on conditions six months ahead.
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ECONOMY TALK: For the fourth time in five weeks, commercial & industrial loans increased last week, rising a whopping $8.2 billion to $1.019.7 trillion in the week ended February 6th. The increases follow a string of weakness wherein C&I loans fell by nearly 10% from the peak of $1.122 trillion set in the week ended February 28th, 2001. The weakness was largely the result of two factors. First, many companies shifted their borrowing to the credit markets where new issuance of debt securities reached a record last year. Second, companies that use C&I loans to fund the accumulation of inventories reduced their demand for funding when they liquidated their inventories. Businesses have been reducing inventories at a rapid clip, with inventories falling at the fastest pace ever last quarter. A continued increase in C&I loans would be consistent with the notion that the recent extraordinary pace of inventory liquidation has ended and that a rebound in industrial production is underway. C&I loans will likely firm in advance of an economic rebound and should be watched for signs of expansion in bank credit. Although C&I loans have declined recently, bank credit has been increasing, albeit more slowly of late. But nearly all of that increase is the result of an increase in bank holdings of securities. In fact, half of the expansion in bank credit is the result of an increase in bank holdings of Treasuries. The composition of the expansion of bank credit is therefore less desirable in terms of implications for the economy. C&I loans have fallen by roughly $45 billion since the end of August and are down 8.4% from year ago levels. |
