OUR DOUBTS ABOUT THE MARKET spring from more, believe it or not, than simple orneriness. Yes, we confess, even the hint of a budding consensus on the market makes us twitchy. And when we're confronted by a consensus in full bloom as we suddenly are by the current overwhelming bullishness, our impulse is to run, not walk, to the opposite opinion.
But contrarianism, for all it's a more reliable market guide than most, isn't the only cause of our mounting unease. Despite the hoopla over the big spur the tax cuts will provide and the prospect that Mr. Greenspan will show his gratitude to Mr. Bush for keeping him in his post by taking another whack out of rates later this month, the outlook for the economy to our rheumy eyes still appears pretty darn dim.
Nor have the scraps of favorable news so gleefully seized upon by the Street's sunshine set softened our conviction that while the economy may not be caught in quicksand -- not yet, anyway -- it's sloughing along on very squishy turf. And we don't see the going getting a whole heck of a lot better in the months ahead.
Even those seemingly favorable scraps on close scrutiny turn out to be only less worse than anticipated. Take, for example, the Institute of Supply Management's most recent survey. It showed that activity in its particular bailiwick -- manufacturing -- declined in May for the third month in a row, but more slowly. No doubt it's better to decline more slowly than more rapidly; it's still a decline, nonetheless. Yet it was hailed in some quarters and in some headlines as outright expansion -- which it wasn't (new orders grew and so did output, but inventories, deliveries and employment all yielded negative readings, as did the overall index).
Moreover, Merrill Lynch's Richard Bernstein points out that the "prices paid" component of the ISM index historically has a very high correlation with the profits cycle. And last month that measure of the prices the purchasing agents paid suffered its biggest drop -- to 51.5 from 63.5 -- in 30 years.
As Rich comments: "This appears to be yet another profits indicator suggesting that the profits cycle might be peaking, and that second-half earnings might be weaker than many have suggested." If the economy is finally to shake loose from its long dreary siege of sluggishness, a sharp rise in corporate earnings is an absolute prerequisite. We also heard somewhere or other that earnings and stock prices are not unrelated.
Friday's employment report inspired a similar impulse by the cheerleading contingent to leap before it looked -- or, at least, before it looked with eyes wide open. The usual suspect forecasters had predicted anywhere from 30,000 to 60,000 fewer jobs. The actual loss was 17,000. That triggered an exuberant response by the market for an hour or two as well as by more than one certified economy watcher.
Even a quick glance at the actual report from the Bureau of Labor Statistics would have been enough to quell any celebratory urge. To begin with, it was no secret that the boys at the bureau -- and the gals, too -- had gotten bored with the way they'd been figuring the job data (we sure don't blame them) and so decided to make some changes -- benchmark revisions, to use the stiff statistical lingo. The most conspicuous result was the disappearance of -- not jobs, of course, but job losses previously reported, mostly in February. And, generally, the rejiggering made trying to anticipate last month's actual number of job gains or losses pretty much a pin-the-tail-on-the-donkey exercise.
More to the point, the modest dip in payrolls in the latest report doesn't square with the weekly total of new claims for unemployment insurance, which have stubbornly held above 400,000 and, indeed, in the latest count, hit a five-week high of 442,000. Average workweek, hours worked and average hourly earnings were all more or less flat, while the jobless rate edged up to 6.1%.
What we found especially interesting was that something like 16,000 jobs were lost last month in electronics and computers, extending an unbroken decline that stretches back to January 2001. Even tech companies, we have a hunch, don't lay off people when business picks up or looks like it's about to. So why are investors going wild over techs? No, we asked first. You tell us.
The other Allen -g- |
