Visibility? Not Right Now
By Kim Rupert
"Lacking clear visibility." That phrase has come up more than once over the last several weeks. Though used mostly in the context of the erosion in the corporate outlook, it can also be applied across the financial and economic spectrums. Indeed, many have even said that Greenspan hasn't been able to see past his own shadow to get a clear view of the economy.
Though the surprise rate cut by Fed policymakers on Apr. 18 suggested that Greenspan & Co. were starting to see the light, there was doubt the move would significantly improve the view ahead. And ironically, it left a dark cloud hanging over the long bond. While forecasters will be watching upcoming data closely, the reports aren't likely to answer the all-important question of whether the economy is in the process of turning.
After the initial shock wore off from the Fed's rate cut, economists extrapolated from data, recent trends in the markets, and the Fed's policy statement to come up with numerous reasons why the Fed did what it did. One key was the uncertainty, or "lack of visibility," going forward in the tech and related sectors, the potential further decline in capital spending. While most participants in the weekly survey of Fed watchers by S&P MMS expect the U.S. to skirt a recession, it remains a close call. Nearly all agree, though, that the Fed has more to do in terms of easing.
WHAT TO WATCH.
The data calendar over the next two weeks has something for everyone, and while no report can be singled out as key, each is an important piece of the puzzle. This week's list includes consumer confidence, durable goods orders/shipments, new and existing home sales, employment cost index (ECI), help wanted, and first quarter gross domestic product (GDP).
The following week's calendar is just as critical with income and consumption, regional and national purchasing managers' surveys, vehicle sales, construction spending, and payrolls. Unfortunately, MMS Survey medians continue to reflect mix of conflicting signals that have confounded the search for a bottom in this slowdown.
First quarter GDP could be the most compelling data for the recession argument (using the definition of two consecutive quarters of negative growth). The median calls for growth of 0.9%, with nearly half of the forecasts at or above 1%. March durable orders are expected to rebound 0.5% from their 0.2% decline in February. Housing should hold up fairly well, with the medians for new and existing home sales little changed from the relatively healthy priors.
Consumer sentiment remains perhaps the biggest wild card. It is expected to dip four points to 114.0, but these data are as capricious as the sentiment they measure. The National Association of Purchasing Managers (NAPM) index is expected to stabilize, while payrolls are expected to post a sluggish 50,000 increase.
The Fed is widely expected to cut rates further. About 75% of those contacted expect another 50 basis-point easing at the May 15 FOMC meeting (21% opted for a 25 basis-point cut while 4% said there would be no change in rates). Assuming at least a 25 basis-point May cut, 82% expect at least another 25 basis-point reduction in June. However, 40% of those contacted expect at least a 3.75% Fed funds target rate by summer.
Rupert is a senior economist for Standard & Poor's