LEADING INDICATORS
Slump deepens
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Economists often see themselves as historians, studying past experiences and using the data they collect to try to give us a peek at the future.
It is no surprise, then, that when something so horrendous as the terrorist attacks on the World Trade Center and the Pentagon occur, economic forecasts tend to vary wildly.
One thing is sure: The Sept. 11 attacks have deepened an economic slowdown that was already advancing.
Robert Froehlich, chief investment strategist at Scudder Investments, thinks the economic and stock market declines will be steep and short, with a bounceback taking place sooner than people were expecting before the tragedy.
The U.S. is headed for a V-shaped recovery, Froelich predicted Friday .
A taste of things to come will be provided Monday by The Conference Board’s index of leading economic indicators, a key gauge of future economic activity, said Wayne Ayers, chief economist at FleetBoston Financial.
After increasing 0.3 percent in both June and July, Ayers expects August’s composite index will fall 0.2 percent, as “almost all of the principal indicators decline.”
Regarded as a barometer of economic activity for the next three to six months, the index signals peaks and troughs in the business cycle, as it takes in everything from stock prices to vendor performance and manufacturers’ new orders.
CONSUMER CONFIDENCE
Sept. 11 reflections
All eyes again will be on The Conference Board for its September consumer confidence report on Tuesday, which analysts expect to be among the first official indicators to show the effect of the terrorist attacks on the economy.
The board, which conducts a monthly survey of 5,000 households, plans to separate data on consumer confidence before and after the Sept. 11 attack, providing economists with the best report yet on how consumer spending may be affected.
“We’re all trying to gauge how much spending is likely to be impacted by the attacks,” said Chicago-based Dana Johnson, head of Bank One Capital Market’s research team.
The index will fall 9 points, to 105 from 114.3, he estimates.
Economists have been keeping a close watch on consumer spending, which has remained robust despite weakness in other key areas of the economy.
If consumers are shopping dramatically less, as most analysts suggest, they may benefit from a further easing of interest rates by the Federal Reserve, economists said.
Since January, the Fed has cut interest rates eight times in an effort to bolster the economy, most recently on Sept. 17, when the stock markets reopened after the attacks. That move cut the Fed’s overnight bank lending rate by half a percentage point to 3 percent.
“I would be shocked if the Fed didn’t drop rates again,” Johnson said. The Fed’s policymaking group next meets Oct. 2.
EXISTING HOMES
Demand slowing
After providing a beacon of hope in a sluggish economy, home sales now are slowing, says Alexander Paris Sr., president and chief economist at Chicago investment firm Barrington Research Associates.
Nationwide, housing starts fell 6.9 percent in August to a seasonally adjusted annual rate of 1.53 million units, the Commerce Department said on Thursday.
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Existing home sales are also expected to show a decline when those numbers are released Tuesday, said Paris.
EQUITIES
A test of nerves
Eight days of consecutive declines in the Dow Jones industrial average have left many market watchers wondering just how low it will go. During the gulf war in 1991, most stock indexes fell more than 20 percent as confidence ebbed from the markets.
For the week, the Dow plunged nearly 1,370 points, or 14.3 percent–its biggest weekly percentage drop since July 1933. The tech-heavy Nasdaq composite index, already battered this year, lost another 16 percent through the week.