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Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Les H who wrote (31593)	10/27/1999 5:59:00 PM
From: Les H	Read Replies (1) \| Respond to of 99985

PREVIEW: US GDP REVISIONS ADD UNCERTAINTY; ECI BOOSTED BY BENEFITS By Joseph Plocek WASHINGTON (MktNews) - The "double whammy" of U.S. data due for release Thursday is seen as confirming strong growth and low wage pressures, but may be less than conclusive for the financial markets, economists say. "Inventory building and consumer spending should power the U.S. economy to a 4.7% Q3 growth rate," said Avery Shenfeld, economist at CIBC Oppenheimer. "Unless there is another shockingly low inventory number, the headline growth rate won't be too much of a surprise. The market reaction (will be) likely driven by the ECI," he continued. The median estimate in a Market News International poll of economists is for 3Q GDP to grow 4.7%, with the range at 3.4% to 5.6%. "Q3 real GDP forecasts have an extra degree of uncertainty attached, as benchmark revisions will be released simultaneously," said Jay Feldman of Credit Suisse-First Boston. The changes reflect in part new data, in part statistical changes that better measure growth, and in part definitional and classification improvements. The comprehensive revisions cover the last 40 years and are part of on-going improvements to the national income accounts made every four to five years, the Commerce Department has said. Major definitional changes incorporated into the national accounts include classifying business and government expenditures on software as investment, which may boost producers durable equipment; reclassifying government retirement plans to treat them similar to private plans, which may increase personal savings; and changing the treatment of property income of private noninsured pension plans, which may increase insurance companies' profits. The other major indicator released Thursday is the Q3 Employment Cost Index, the broadest measure of labor costs. "Employer costs are estimated to have increased 0.8% during the three months ended in September, following a 1.1% advance in the three months ended in June," said Marilyn Schaja of DLJ Securities. Schaja's forecast is at the low end of the range of +0.8% to +1.1% reported in a Market News International poll of economists. Wage growth slowed, based on data reported in the average hourly earning components of the employment reports already available from the Bureau of Labor Statistics, but employer costs are no longer decelerating. This reflects "the (lack of a) beneficial impact from lower benefit costs, due to the shift from fee-for-service health care plans to health maintenance organizations, has passed," Schaja said. The year-over-year growth rate for the 3Q ECI is seen at +3.1% if it posts the consensus 0.9% gain in Q3. Joseph Abate, economist at Lehman Brothers, said "Despite the continuing tightness in labor markets, the index has decelerated half a percentage point from its 1998 peak." One reason may be that stock option compensation is not included in the ECI, Abate said. As a result, economists suggest investors also should pay attention to the GDP chain price index, where the median estimate is +1.3%. This would represent little change from +1.6% in 2Q. economeister.com