April 26, 2002

Gross Domestic Product - Surges 5.8%
Durable-goods orders - Decline 0.6%
New Home Sales - Fell 3.1%
Gold - Continues to Climb

The Commerce Department reported that the nation's Gross Domestic Product (GDP) surged 5.8% in the first quarter of 2002, rebounding from the malaise of 2001 and the attack on New York's World Trade Towers. Ken Mayland, President of ClearView Economic, declared "Growth is back! The recession is over! This economy is getting back on a good growth track, which down the road will mean good things for the restoration of jobs and companies' profits." But, wait, how far "down the road" are we talking about? At closer inspection, more than half of the gain in Q1 growth came from a slowdown in inventory liquidation by businesses - usually at huge discounts. A key to sustainable economic recovery and growth includes a pick up in capital expenditures by businesses and increases in durable-goods orders.

Durable-goods orders - big ticket items expected to last at least 3 years - declined in March by 0.6%, according to the Commerce Department, reflecting slowing demand for autos and computers. Specific items included:

  • Transportation equipment
  • Orders for cars/trucks
  • Computers
  • Airplane orders
  • -1.6%
  • -2.6%
  • -3.3%
  • +9.5%

The government announced that its durable-goods report would no longer include orders and shipments of semiconductors. The reason for this change in the government report is due to the fact that semiconductor manufacturers have chosen not to supply this information to the government. The latest report for March did not include these items.

New home sales fell by 3.1% in March, the Commerce Department reported. New single family homes sold at a seasonally adjusted rate of 878,000 in March, down from a revised February rate of 906,000 homes. Inventories of available homes increased in March to 311,000 - a 4.3 months estimated supply (March sales rate). By region, new home sales declined by 0.2% in the South, rose 3.3% in the West, plummeted 19.3% in the Midwest, and fell 4.4% in the Northeast.

Gold continues higher and appears to be firmly above the $300 per ounce level. The ongoing war in the Middle East is having a favorable reflection on precious metals. For interested investors, the Camino Coin Company, P.O. Box 4292, Burlingame, CA 94011; Tel. (800)348-8001 is one place we have found to be fair in its pricing on either side of the trade.

April 19, 2002

Earnings Season - Electric Utility Industry

Mild weather across the U.S. this past winter will likely weigh on earnings of many utility companies, which will shortly be reporting earnings. It is projected that utility sales will be weak across both residential and commercial classes, with industrial sales down due to the slowdown in economic activity. Additionally, a decline in power prices will dampen company performance. In any event, the relatively stable earnings environment and an average yield of 4.8% in the electric utility arena, make utility shares look attractive compared with alternative income options.

Chart is provided by DecisionPoint

April 18, 2002

LEI - Trade Deficit

In its projection of economic activity three to six months into the future, the Conference Board's Index of Leading Economic Indicators (LEI) edged higher by 0.1 percent in March to a reading of 112.3 (1996=100). Over the past five months, the LEI have posted gains in all but February, when the index held steady. Analysts had been forecasting a slightly higher increase of 0.3 percent for March. Federal Reserve Chairman Alan Greenspan's remarks to a congressional panel April 17th signaled that probabilities are for a sustained expansion of business activity. However, he added that it would be another “two to four months” before economists could say for sure. Of the 10 Leading Economic Index indicators, six increased. Declining components included building permits, initial unemployment insurance claims, real money supply and new orders for non-defense capital goods.

On the trade front, the Commerce Department reported that the nation's trade deficit widened to $31.5 billion in February, 11.6 percent higher than the January trade gap of $28.2 billion. Exports rose by only 1.2 percent in February to $79.2 billion, while America's imports increased 4 percent in February to $110.7 billion. A contributing factor to this trade gap is the strength of the U.S. dollar vis-à-vis foreign currencies. Over the past five years, the U.S. dollar has risen in relative value to other currencies by approximately 30 percent. The strength in the U.S. dollar causes U.S. exports to be more expensive in foreign markets and U.S. imports to be less expensive to Americans. In particular, imports of vehicles and related auto goods increased to $16.6 billion in February: similarly, imports of consumer goods, i.e., televisions and furniture, rose to $24.4 billion in the month.

Current Observations: Corporate capital expenditures as well as expansion plans remain elusive on the horizon. On the other hand, consumer spending remains surprisingly robust, given the employment and unemployment outlook. Corporate cutbacks continue, i.e., GE - one of the latest big-cap companies downsizing its workforce by 7,000 positions in its General Electric Capital division. Consumers and their spending patterns can be extremely fickle. In a sound and expanding economy, investors expect to see a pickup in corporate spending for plant and equipment. Interest rates should remain steady for the foreseeable future as the Federal Reserve awaits expansionary signs in the real economy. Commodity prices have continued to trend higher since mid-October 2001 as recorded by the Commodities Research Board's index – see chart. Gold is establishing a base above the $300 per ounce level.

Chart is provided by DecisionPoint

April 5, 2002

March Unemployment Up

The Labor Department announced that the unemployment rate rose to 5.7% in March, an increase of 0.2% from February. The report indicated that losses in the construction industry and manufacturing were tempered by job gains in the service industry and local government jobs. During the current recession, businesses from just about every industry have severely scaled back employment. The Layoff List (reported by MSNBC) illustrates the number of jobs lost in March and the first few days of April, albeit the rate of jobs loss is slowing somewhat. Still, with Wall Street's near sole focus on the bottom line (earnings), things are not expected to significantly improve on the jobs front any time soon. Of course, rising unemployment is one sure way to bring about a slowdown in consumer spending and confidence.