Slower growth today - worse indicators on Friday

Thursday, April 28, 2005

The GDP growth rate of 3.1 (previous 3.8) percent and a jump in jobless claims from 299,000 to 320,000 has lessened fears that the Federal Reserve will come up with more than a 25 basis points tightening at the May 3 FOMC meeting. Looking at Friday's economic indicators, the FOMC will probably have no long discussion before voting for the next measured step unanimously. That is, if they prioritize economic growth above everything else and have no intention to slow the accelerating pace of inflation and consumer expenditures which is still expected to top the growth in personal incomes, according to a Bloomberg survey. The slower GDP growth reported today cannot be attributed to Americans getting more tightfisted as the Employment Cost Index is seen rising to one percent in the first quarter of 2005, thereby topping the last rise of 0.7 percent in the previous quarter. Malicious note here: State and government employees enjoyed a total income rise of 18.5 percent since Bush came into office while private sector workers got 15 percent more in the same period. In March 2005 personal incomes are seen to have risen 0.4 percent in March, while consumption with a forecasted plus of 0.5 percent contradicts recent reports that Americans are cutting back on their credit card or other debts. I wonder if anybody will contradict my forecast that consumer sentiment, which already fell in March to 92.9 (February 94.1) will come in a tad lower than the consensus forecast of 88.5.
The problems therefore do not seem to have changed in the recent past: America imports too much while producing and exporting too little. This results in something called the trade deficit and lucky us, we are still 24 days away from that figure which plausibly will not show an improvement, given the high oil prices, which only retreated in the current week.
The huge reversal in the trend for durable goods orders this week, still ringing in my ears, does also appear to be a negative leading indicator for the napalm-index, excuse me, the Chicago NAPM-Index (National Purchasing Managers Index), which is seen at a consensus level of 63 after 69.2 percent last month.
The stock market has absorbed today's negatives surprisingly well with a decline of 65 points in the Dow so far, thanks to a string of good quarterly earnings. No big surprise that Exxon-Mobil made a decent bundle at these oil prices. And the bond market obviously takes relief from the growth slowth that warrants a continuation of the FOMC's "measured" pace that could even come to a halt later this year if wages and production continue their lame performance.


Wikinvest Wire