Message-ID: <16354472.1075845217696.JavaMail.evans@thyme> Date: Sat, 2 Jun 2001 04:58:46 -0700 (PDT) From: timely-invest@mail-list.com To: alewis@ect.enron.com Subject: Weekly Economic Update Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit X-From: timely-invest@mail-list.com@ENRON X-To: alewis@ect.enron.com X-cc: X-bcc: X-Folder: \Lewis, Andrew H.\Lewis, Andrew H.\Deleted Items X-Origin: LEWIS-A X-FileName: Lewis, Andrew H..pst WELCOME - Vol. 6 No. 22 TIMELY INVESTMENT INFORMATION - Weekly Economic Update ====================================================== Welcome ! For new and old subscribers, there is an Archive Section on our website at: http://www.stockresearch.com/archive.html It lists the original copy of each of our research reports, updates to those reports, and articles that we have published. Also, if you haven't already done so, we would appreciate it if you would take our survey at the end of this email - after the Classified Ads. Thanks. ============================================================= PLEASE SUPPORT OUR SPONSORS =========================== INVESTOOLS ========== Blood Is Running In The Streets! Buy These 10 Tech Bargains! Investors' mad dash for the exits spells 'opportunity' to Al Frank. He's done it before (Dell +2,996%, Fannie Mae +4,096%...) And now he's doing it again! 10 booming BARGAIN techs, all with SOLID fundamentals. FREE 30-day trial: http://www.investools.com/c/go/PRUD/SR-prudTH2?s=S601 INVESTOR'S BUSINESS DAILY - FREE TWO WEEK TRIAL OFFER ===================================================== FREE TWO WEEK TRIAL to America's Fastest Growing Newspaper and the FREE VIDEOTAPE "Maximizing Your Success." CLICK http://ibd.infostreet.com/cgi-bin/freeoffer.cgi?source=ALA1GE2 NO CREDIT CARD INFORMATION REQUIRED ============================================================ This is a text only copy that should be fairly well formatted for most e-mail programs. For those of you that would prefer an easier to read format, simply click on the link to our website, and if you want, print a copy. http://www.stockresearch.com/weekecon.html ================================================================ WEEKLY UPDATE FOR: June 2, 2001 Prior Week in Review: Financial Market Highlights: ============================ 06/01/01 05/25/01 %Change S&P 500 1,260.67 1,277.89 -1.35% Dow Jones 10,990.41 11,005.37 -.14% NASD Comp 2,149.44 2,251.03 -4.51% Russell 2000 501.72 508.62 -1.36% SOX Index 617.60 654.64 -5.66% Value Line 406.99 413.63 -1.61% MS Growth 568.75 564.76 +.71% MS Cyclical 562.79 562.88 -.02% T - Bill 3.54% 3.57% -3 BP Long Bond 5.71% 5.84% -13 BP Gold - Oz-Near Month $268.00 $277.90 -$9.90 Silver - Oz-Near Month $4.42 $4.56 -$.14 Economic News: ============== Recent Economic Reports Mostly Quite Positive Economy Bouncing Along Bottom - Confidence Recovers Our View Remains - No Recession, Second Half Recovery *Q1 GDP revised downward to +1.3% - Prior week's report *April Personal Income rose +.3% - Spending rose +.4% *May Consumer Confidence rose to 115.5 from April's 109.9 *Jobless Claims up +8,000 to 419,000 - Four Week Moving Average drops -1,500 to 402,500 *Chicago Purchasing Managers' Index for May 38.7 - Essentially unchanged from April's 38.9 *April Construction Spending rose +.3% *Nat'l Assn. of Purchasing Managers' Index eased to 42.1 From April's 43.2 *Labor Department Employment Report - Unemployment Rate eases to 4.4% - Nonfarm Payrolls fell -19,000 - Average Hourly Earnings rose +.3% to $14.26 - Average Workweek rose +.1/hr to 34.3/hr Virtually all the recent economic reports have been quite good, implying economic conditions are not getting worse, and setting up the economy for a recovery later this year. However, we are still concerned that the FOMC (Federal Open Market Committee) may have been too aggressive, so we still believe that inflation risks are greater than consensus expectations. But near term, the outlook is improving. Perhaps the "key" report was the fairly good gain in consumer confidence for May. As most of you know, consumer spending drives approximately two thirds of economic activity. Our view has long been that if consumers have confidence, and the wherewithal, they will spend. Both conditions are currently positive, and while we would be the first to admit that one report is not a trend, it is nonetheless an encouraging bit of information. In addition, it also has implications for FOMC policy. As we have noted several times, the FOMC was worried about consumer confidence, driven by a negative "wealth effect." We have never been big believers in the "wealth effect" - negative or otherwise. But the FOMC believes, and that's what counts. However, if consumer confidence continues to hold up, then the FOMC will likely be less aggressive in lowering rates. While the labor market is still clearly soft, the improvement in the unemployment rate and the positive revisions to recent data suggest that deteriorating labor market conditions should not erode consumer sentiment. However, all was not positive in Friday's Labor Department report. Consider the following year-over-year comparisons of increases in average hourly earnings. Jan '01 4.00% Feb 4.21% Mar 4.35% Apr 4.25% May 4.47% This looks very much like a trend to me, and is the primary reason that in my opinion consensus inflationary expectations are too low, as productivity "gains" during the first quarter were non-existent. The point I had made in earlier issues, in my opinion, remains valid, and worth repeating. The FOMC is making a very, very big bet. And that bet is that they can jump start economic growth, and that productivity growth will pickup sharply as economic growth resumes, and that reduced pressures in the labor markets will moderate gains in unit labor costs. In my view, this is a lot that has to go right - with almost perfect timing. It's not that I don't think this scenario won't play out, it's just that my concerns are that it won't play out perfectly. My forecast remains for a second half recovery continuing into 2002, and that should reignite productivity growth. But, economic growth of 3.0% may only produce productivity gains of, say 2%. And, if pressures in the labor markets don't abate, as the economy recovers, inflationary expectations will rise. In short, near term the news remains positive as the probabilities for economic recovery improve. But, risks remain in my view - just not the risks most investors are worrying about. Stay tuned ! Current Weekly Calendar of Economic Data: ========================================= Monday: Tuesday: Final Q1 Productivity, Factory Orders Wednesday: Thursday: Jobless Claims, Consumer Credit Friday: Fresh Money Buys: ================= In response to subscriber feedback, we have established this section to highlight recommendations from our list that we believe are the most attractively priced currently. We will limit the selections to three each week, even as our list of recommendations grows. American International Group (AIG) $80.09 Automatic Data Proc. (ADP) $54.65 Pfizer Inc. (PFE) $42.81 Full reports, and updates, are available on our Website at: http://www.stockresearch.com/archive.html We will not track the performance of this list as we are already monitoring the original recommendations. 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