Les, I am concerned about WSJ's hypothetical electrician who
now has a one day backlog of orders ( from 15 ).
How significant is this?
Some thoughts on Market Direction: Joe Blow has kept the economy and stock market going
for the last 8 years now by investing his good earnings into them.
interactive.wsj.com
"As the housing market has slowed, so has the overstretched construction business.
Charles Ruma, president of Virginia Homes, in Columbus, Ohio, says contractors
are now more eager for work and available on shorter notice.
"All of a sudden when we've got a job for an electrician, we call
and instead of waiting for a week, he's there the next day," says Mr. Ruma.
"It's almost across the board -- plumbers, electricians, carpenters."
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Some of last weeks 19% increase in the Naz has been due to
moneys rotating out of cyclicals, financials etc;.
But for the Naz to continue permanently up
we need new moneys.
But with a slowing Economy/profits will this be possible?
If you can get an electrician now in one day, the next question
is, will he have a job at all tomorrow?
I suppose the expectation is for a soft landing.
However this has never been done before.
Is caution is in order?
TA
=========================
June 5, 2000
interactive.wsj.com
Federal Reserve's Rate Increases Seem
To Have Vented Economy's Steam
By JOHN D. MCKINNON, YOCHI J. DREAZEN and NICHOLAS KULISH
Staff Reporters of THE WALL STREET JOURNAL
In his bid to bring the nation's economy in for a soft landing, Federal Reserve Chairman Alan Greenspan at least has the landing gear down.
Friday's employment report capped a week of statistics that paint a picture of an economy that's slowing, but not precipitously. Although the evidence is still tentative, it looks like exactly what Dr. Greenspan ordered: slower growth, to head off inflation.
The six interest-rate increases engineered by the Fed since last June are beginning, albeit belatedly, to cool off interest-sensitive sectors such as housing and construction. And that, in turn, appears to be inspiring a more general slowdown in economic activity.
Mr. Greenspan "is demonstrating that he's either better at this than any human being has a right to be, or luckier than any human has a right to be," says Brad DeLong, an economist at the University of California at Berkeley.
The signals remain hazy. The employment report is full of anomalies, and could prove to be a fluke. And even if it looks more subdued in recent days, the economy could resume its torrid pace of late last year and early this year, when it clocked in at annual growth rates of 5% to 7%. In fact, financial markets may hold the deciding card; if last week's euphoria continues, they could stoke consumer and business demand, prompting the Federal Reserve to push rates higher still.
Then there's also the chance that last week's news was the harbinger of a slowdown that runs deeper than Fed officials hope, perhaps even ending an expansion that already has lasted longer than any of its predecessors.
But for now, at least, the economy seems to be heading right where the pilot wants it to go. The latest economic data are feeding sentiment inside the Fed supporting a pause in the central bank's campaign for higher interest rates. And financial markets, which rallied last week, already are convinced the Fed will keep rates on hold. In the futures market for federal funds, where bets are made on future Fed policy, trading supported the view that the Fed wouldn't tighten credit at its next meeting, scheduled for June 27-28. Just two weeks ago, some in that market were expecting a half-percentage-point rate increase this month.
The employment report on Friday shows that the jobless rate rose to 4.1% last month from 3.9% in April. More significantly, private-sector employment actually fell by 116,000 jobs on a seasonally adjusted basis -- the first such decline in four years and the biggest since November 1991. Only frantic hiring by the Census Bureau pushed payrolls up for the month.
By itself, the report is hard to interpret. At retail establishments, for example, employment shrank by 67,000 jobs during the month. That follows a big increase in April, and is hard to explain, since retail shops aren't usually that sensitive to the Fed's moves. But the report punctuated two weeks' worth of data that, together, provide solid evidence of a Fed-engineered slowdown.
Late last month, for instance, a Fed survey found that a quarter of American banks had tightened their lending standards in response to Fed action. Business-loan demand plummeted 25% in the early months of the year, while home-mortgage demand fell by more than 56%.
Chris Borchard, a senior loan officer at Pathfinder Mortgage Co. in Phoenix, said the change was evident to him on Friday, when his under-occupied colleagues in the mortgage business began calling at noon to suggest an early start to his birthday celebration. "It's been slow compared to a year ago," says Mr. Borchard, who turned 36. "I know guys who are just struggling to keep afloat."
The slowing demand for mortgages is echoed in the real-estate market. The government reported last week that new home sales fell 5.8% in April and were 2.3% lower than they were a year earlier. Sales of existing homes fell even more sharply.
As the housing market has slowed, so has the overstretched construction business. Charles Ruma, president of Virginia Homes, in Columbus, Ohio, says contractors are now more eager for work and available on shorter notice. "All of a sudden when we've got a job for an electrician, we call and instead of waiting for a week, he's there the next day," says Mr. Ruma. "It's almost across the board -- plumbers, electricians, carpenters."
That change is reflected in other businesses that serve the housing market. Gary Burleson, president of BBP Concrete, Phoenix, which specializes in residential tract housing, sees the slowdown affecting the lower end of his market. For "some of the first-time buyers, the interest rates have affected their ability to buy homes," he says.
William Strassburg, president of Chase-Pitkin Home & Garden Center, which runs 15 stores in upstate New York, says his stores' sales of patio sets are 15% below expectations. "People will curtail major purchases when they don't feel as wealthy," Mr. Strassburg says. "There will be less of them willing to spend on major purchases, from decks to new windows to major renovations."
Last week's statistics provide the first indication that the slowdown in the housing sector is beginning to spread more broadly throughout the economy. Consumer spending, while still strong, increased in April at its slowest rate since this past July. Manufacturing activity also eased a little, according to the latest report from the National Association of Purchasing Management. And orders for big-ticket durable goods fell 6.4% in April.
Taken together, those statistics offer indications that the economy's annual growth rate is slowing to the 3.5% to 4% annual pace that the Fed thinks is sustainable over the long run. Continued faster growth, Fed officials worry, would inevitably lead to an acceleration of inflation, as employers bid up wages to attract increasingly scarce workers. But with May's jump in unemployment came a sharp deceleration in wages.
Some observers, such as Mr. Ruma, the home builder, worry that the Fed already has gone too far. After all, Fed actions take at least six months to affect the economy. That means the current slowdown doesn't even reflect the half-point rate increase Mr. Greenspan imposed last month. "There's started to be a little slowdown in [housing] starts, and it could get worse," says Mr. Ruma.
But his is clearly a minority view. There are few signs of a recession on the horizon. The economy's momentum continues to be strong. It's just not quite as strong as it was in the first quarter, when growth came in at an annual rate of more than 5%, or in the fourth quarter of last year, when it was above 7%.
Meanwhile, those sifting through Friday's data are more than a little perplexed. Macroeconomic Advisors, a St. Louis economic consulting firm, cut its forecast for growth this year to 4% from 4.4%; many other economists are expected to cut their forecast this week. But Chris Varvares said the St. Louis firm's economists spent Friday morning gathered in one colleague's office, sitting on chairs, the windowsill and the floor, drinking coffee and trying to make sense of the confusing employment numbers. "For every theory, there was some fact in the report that ran crosscurrent to that," he says.
A Striking Drop
For instance, while census jobs were up by an enormous 357,000 positions, according to one section of the report, government employment overall was down 111,000, according to another measure. That suggests a problem with the data. May's drop in retail employment was particularly striking, given that that sector added a whopping 176,000 jobs the month before.
Tom Nardone, chief of the Labor Department's division of labor-force statistics, acknowledged the numbers reflect the difficulty of adjusting for seasonal variations. For example, eating and drinking establishments, a component of the retail sector, had unadjusted growth of a little more than 200,000 jobs in April, and another 150,000 or so in May. "The way that showed up in the seasonally adjusted data was up 98,000 in April and then down 33,000 in May," Mr. Nardone says. "Seasonally adjusting data can be tough. You have to be very cautious about reading too much into one month's estimate."
One of the most disturbing aspects of the employment report was a statistic suggesting that unemployment among workers who lack a high-school diploma jumped to 7% from 6.1% in April -- nearly quadruple the 1.6% unemployment rate of college graduates. But Steve Hipple, a Labor Department economist, says that figure had been 7% as recently as last August, and was 7.4% in February 1999.
Bouncing Numbers
"These numbers bounce," Mr. Hipple says. Without another month or two of data, he says, it will be hard to know what to make of them.
At the Fed, a continued concern is that financial markets may soar on the belief that the Fed's business is done, and that as a result, it may not be. Chairman Greenspan has spoken at length in recent months about how strong financial markets fuel demand in the economy, and make it necessary for the central banks to raise rates. So if the market rises sharply, rates may have to rise more as well.
"The irony is that because the markets trust Greenspan so much, he'll have to do more" in the way of tightening to protect the economy from the ill effects of overreaching equity markets, says Bill Dudley a Goldman Sachs economist in New York.
For now, however, the decline in technology stocks since the first of the year seems to be one more factor contributing to an overall slowing of the economy. An array of once highflying Web companies -- from medical-information provider drkoop.com Inc. to online retailer Buy.com Inc. -- have seen their share prices collapse, wiping out hundreds of millions of dollars from their market capitalization and hurting their recruitment efforts by rendering their stock options all but worthless. Other start-ups have delayed or postponed their initial public offerings, making it harder for them to find enough money to stay afloat. Several -- including high-end fashion retailer Boo.com, which closed its doors last month -- have been hit even harder.
Painful Reminder
And with Web companies of all sizes and stripes getting a painful reminder that profits still matter, many are resorting to a tactic unthinkable in the rapidly expanding sphere even a few months ago: layoffs. Internet giant Amazon.com Inc., Web portal Alta Vista and pet-supplies retailer Petstore.com have all dismissed workers, often for the first times in their history, since the beginning of the year.
Or consider TurboLinux Inc. In an effort to become profitable more rapidly and increase its future appeal to investors, the San Francisco company laid off dozens of administrative and marketing employees late last week and says it plans to expand its work force less aggressively in the months to come.
"A few months ago, the market was telling open-source companies and dot-coms that it was OK to go out, grab market share and worry about the profitability story later," says Lonn Johnston, the company's vice president for marketing. "But that has clearly changed."
But overall demand for high-tech workers remains so hot that it is hard to see any impact this change has had on the overall economy. Many parts of Silicon Valley have a negative unemployment rate, with far more jobs available than there are workers to fill them. Some of the dismissed TurboLinux employees, for example, had interviews for new positions lined up by the following morning.
At CDI Corp., a Philadelphia recruiter specializing in high-end technical workers, demand for its workers is nearly double its available supply. "We could double our" information technology "placements tomorrow if we had the right people," says CEO Mitch Wienick. The company, which had revenue of $1.6 billion last year, estimates that it has 32,000 to 35,000 workers in the field on a given day, though it says it has demand for nearly 70,000.
"We just can't find people fast enough," he says.
=======================You said
Message #53113 from Les Horowitz at Jun 5, 2000 2:30 PM ET
End of Margin Selling Rally?
Liquidity Trim Tabs Summary June 5, 2000
Bottom Line:
We Turn Cautiously Bullish & Expect To Go Short Soon.
End of Margin Selling Rally Could Last Another Week or So.
Headline:
Liquidity Negative Last Week.
Big Flows Likely Early This Week Bulling Stocks Higher. Historically,
Stocks Always Pop After Margin Liquidation Ends, But For How Long?
Subheads:
Liquidity Rebounds in May.
New Cash Takeovers Surge While New Offerings Slump.
All Equity Fund Flows Through Early June Tops Total 1999 Flow.
Our Guess:
Insider Selling & New Offerings Will Surge in June.
Float Likely To Grow in June if Current Trends Persist.
May Withheld Taxes Slows to 8.6% Y/o/Y Gain From 15.2% in April
Slower Growth in Tax Collections Will Reduce Surplus and Hurt Long Bond Prices.
Last Weeks Equity Outflow Likely Reversed This Week.
US Equity Funds % & Actual Cash Surged 13% at End of April.
trimtabs.com
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