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To: Eric Maggard who wrote (21401)	7/29/1999 1:36:00 PM
From: Les H	Read Replies (1) \| Respond to of 99985

ANALYSTS DOWNPLAY WEAK US GDP, FOCUS ON INFLATION DANGERS 10:44 EDT 07/29 --Greenspan's Pet Number ECI Carries Bearish Bite for Markets By Chris Middleton WASHINGTON (MktNews) - U.S. economists echoed the bond market's bearish reaction to Thursday's mixed messages from the morning data releases, focusing on the inflation signals and perceived increased likelihood that the Federal Reserve may raise interest rates again next month. Most of the attention went to the Employment Cost Index for the second quarter of 1999, where a 1.1% increase was the highest in eight years and considerably higher than forecasts, which in a Market News International poll centered on a boost of 0.8% for the quarter. Referring to the Q2 ECI, Ian Shepherdson, chief U.S. economist at High Frequency Economics, reminded readers that the indicator is one watched most closely by Fed Chairman Alan Greenspan. "This is Mr. Greenspan's pet number, and no one likes to be bitten by their pets," Shepherdson said. "The markets always put much more weight on the latest data, and it therefore seems likely that these numbers will be seen as significantly increasing the chance of an August rate hike," he added. But Shepherdson also pointed out that some elements of the ECI report may have been overplayed. "We are deeply suspicious of the ECI's seasonal adjustment and, taking Q1 and Q2 together, the average increase in wages so far this year is just over 0.8%, which is not bad at all." He said both wages and benefits rebounded after what he described as an "implausibly weak first quarter." Aubrey Lanston's Bill Quan emphasized the unanticipated strength of ECI, describing it as "exceptionally strong." "Even taking into account the rebound in compensation for the FIRE (finance, insurance, real estate) jobs, we estimate the quarterly gain for the overall ECI would have still been close to 1%," he added. The strong ECI also appeared to spawn a bevy of detractors on the headline weakness in the second-quarter gross domestic product figures. GDP rose 2.3% compared with the first-quarter figure of 4.3% and well below expectations of 3.4% Quan said "It was not as weak as the headline figure would indicate," citing a bulging trade deficit that was largely due to a surge in imports as opposed to a decline in exports, suggesting continued strong consumer demand. "Second, inventory investment fell below recent trend by $20 billion. This inventory shortfall during Q2 portends to stronger growth in the third quarter due to the need to rebuild inventories," Quan said. Anthony Crescenzi, director of fixed income at Miller Tabak Hirsch, also took the inventories angle in the GDP report. "The GDP data is superficially weak," while "the ECI, of course, was unmistakably bearish. He said the decline in business inventories to $19.4 billion cut an estimated 0.86% from growth, its third quarterly cut. But seeing underlying strength, he noted that the next revision should add back some of the cut. Moody's John Lonski also downplayed GDP, saying it was basically in line with production growth. "Looking at the 25 years ended 1998, not much separated real GDP's 2.7% average annualized gain from industrial production's comparably measured rise of 2.5%." The noted aberration is 1999, when GDP outstripped production earlier in the year. Shepherdson said he is also expecting significant revisions to GDP down the road. "Several factors pulled down growth below expectations, but the biggest was an unexpectedly large 9.7% rise in imports. Monthly trade data pointed to nearer 5 or 6%. Remember that the statisticians are guessing about June trade, so there is plenty of scope for revision." "In any event, a slowdown caused by a surge in imports on the back of rapid domestic demand is hardly comforting to policymakers," Shepherdson added. "We think there is much more chance of upward than downward revisions to these data, and they won't prevent rates rising," he said with his eyes on the Fed. In a brief glance at one of Thursday's other reports, Shepherdson cited the 40,000 decline in jobless claims to 275,000 for the week as another indication of continuing labor market tightness. "There is nothing in these numbers to cheer the Fed," he said. Robert Reid of Reid, Thunberg summed up the Thursday morning data jolt as even putting the possibility of an FOMC inter-meeting tightening into play.

To: Eric Maggard who wrote (21401)	7/29/1999 2:01:00 PM
From: Yogizuna	Read Replies (1) \| Respond to of 99985

Eric, So Garz is basically saying that the market is not seriously overvalued or undervalued right now, or at least yesterday. <g> Of course, I would firmly disagree with that, as we are still in fact overvalued, or at least were, depending upon where we close today! <G> However, her statement about the "budget surplus" (her really thinking that we have one), shows me that she is not fully aware of the "smoke n' mirrors" games being played in Washington, or she does not want to offend the establishment who continue to perpetrate this fraud upon the American people. Yogi