<U.S Economy> 1998 went out with a bang,1999 looking strong.
I don't know Lee,going by the 'experts' mentioned in the article things couldn't be any better at least for a couple of years.
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Home Sales, Leading Indicators Post Gains Even more evidence that 1998 went out like a lion makes the odds of a Fed rate cut more remote than ever
Date: 2/3/99
Author: Jim Christie
Two new reports released Tuesday confirmed 1998 ended on a high note. That, analysts say, makes it a near-sure bet the Federal Reserve will leave interest rates alone.
Sales of new single-family homes in December slipped 3.6% for the month, but rose an astounding 21.5% from a year earlier, the Commerce Department said.
December's sales notched an annualized rate of 978,000 units. That fell from November's all-time high of 1.015 million, but beat the 957,000 forecast by economists in a Reuters survey.
December's sales - primed by low mortgage rates and high consumer confidence - propelled 1998's new-home sales to a record 888,000. The previous record, 819,000, was set in 1977.
Also, the Conference Board's index of leading indicators rose 0.3% in December to a 106.5 reading, in line with expectations.
The index compiles 10 indicators and is used to predict business cycles. Michael Boldin, the Conference Board's director of business cycle research, said that based on the index's upward trend, ''This expansion shows no sign of ending.
''Now almost eight years in length, it is the second- longest on record, and we expect it to become the longest ever in early 2000,'' he added. And, as for a recession this year, ''There's almost no chance,'' he said.
''Over the past six months we saw a 1.2% increase (in the index), almost three times what you see on average for a six- month period,'' Boldin said. ''If you look at the components, it looks like we're at almost 3% to 3.5% growth for the first half of 1999.''
Boldin's call isn't out of line, analysts said. Tuesday's reports were just two more signals. ''The economy is doing great,'' said Victor Canto, president of La Jolla Economics, an economic consulting firm near San Diego. ''Everything seems to be going well.''
That's for sure. Tuesday's data came out on the heels of a slew of other bullish reports. Friday, the Commerce Department said real gross domestic product rose 5.6% in the fourth quarter and 3.9% for all of 1998.
Also Friday: Inflation last year was 1%, as measured by the GDP price deflator. That was the lowest level since 1959.
Monday, the National Association of Purchasing Management said its January index of manufacturing activity posted its biggest rise since June 1996. That suggests U.S. manufacturing may be on the mend, or at least is no longer in a ''free fall,'' said Norbert Ore, chairman of the NAPM's survey committee.
Also Monday: The Commerce Department said that personal income in December saw its biggest gain since February, while consumers kept up a hot pace of spending.
Year over year, incomes rose 5.1% in December, while spending rose 6.1%.
So the economy is humming along. The Fed, now holding its first policy meeting of the year, is expected to leave interest rates untouched, analysts said.
A Reuters survey of primary dealers - firms trading fixed-income securities with the Fed -shows they expect the Fed to keep the federal funds target rate at 4.75%. The discount rate for Fed loans to member banks will stay at 4.5%, the survey also showed.
With so much going right, the Fed can relax, analysts said. Fed policy makers can be especially happy that inflation seems dead, they added.
''When I look at wage data, any measure of inflation you want to pick, exchange rates, as well as the ongoing commodity price situation, there's just no way I can envision any inflationary problem,'' said Kelly Matthews, chief economist for First Security Corp. in Salt Lake City.
There are other reasons the Fed is unlikely to budge.
Cutting rates may send a signal to investors to pour too much money too quickly into the stock market, said Ted Van Dyk, executive president of the Milken Institute, a Santa Monica, Calif., economic think tank.
Fed Chairman Alan Greenspan just warned of red- hot prices for Internet stocks. ''The market is leading the real economy,'' Van Dyk said. ''If rates were to be cut, just imagine how the market might take off and a bubble will be created. Then that bubble could burst.''
Tightening rates also is unlikely. The Fed doesn't want to send signals to struggling economies overseas that credit will be harder to get, or that the U.S. economy - which is soaking up imports - needs to slow.
Also, many analysts expect the U.S. economy to cool on its own, although to solid levels. ''We've never envisioned a weak economy going forward, but instead of this near-4% growth we've seen these past two years, we envision a slowing to 2% to 2.75% this year,'' Matthews said.
But growth this year actually may be stronger, Canto argued. He noted most analysts aren't taking into account the rush to get ahead of the Y2K ''millennium bug.''
Before the computing glitch hits, ''I believe we'll have an acceleration of economic activity,'' Canto said. ''People will get added cash out of the ATM, take vacations before December, buy canned goods.''
(Courtesy:IBD)
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