NEW YORK (CNN/Money) - Hope springs eternal. Faith has the power to move mountains. Good thing. Because right now forecasts of a much stronger economy in the second half of this year remain largely an article of faith.
Take the latest economic reports. The University of Michigan's survey of consumer sentiment on Friday posted a nice gain in May, but like the Conference Board's consumer confidence index released earlier in the week it was a mixed bag. People's hopes for the economy getting better in six months improved a lot, but their view of the current conditions got worse.
As for the Chicago Purchasing Managers report issued Friday, production and new orders jumped, but employment got a hair weaker from an already weak level and order backlogs declined. Again, a mixed message.
New claims for unemployment benefits are still high and the number of people who have to keep collecting unemployment checks because they can't find a job is at its highest level since November 2001. Spending and income were weak in April. Job losses are expected when the numbers for May come out on June 5.
On CNN Money Morning today, Conference Board economist Delos Smith looked askance at what he called the "euphoria" on forecasts for growth in the latter part of the year among some Wall Street economists, something that Fed Chief Alan Greenspan also noted in testimony to Congress last week.
"Is it a hope or is it a reality? Really the only thing you can point to is the equity market," he said. "You have seen a pick up in the equity market but is that a change in the tax laws?"
| Recently by Kathleen Hays
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Indeed, a lot of hopes are being pinned on the stock market rally. Mainly because so many people believe that what's really holding the economy back is a lack of confidence -- no surprise after everything from the September 11 terror attacks to war with Iraq to SARS battering consumer and business psyches. As one economist put it, there's nothing like a rising stock price to make a CEO feel better about his or her business.
Delos Smith is skeptical. He says that even with the tax cuts signed last week, even with a stock market rally, CEOs are going to wait and see if the geopolitical tensions that hammered the economy earlier in the year are really and truly gone.
"You're not going to see business spending rushed into because you have that heightened geopolitical tension," he said. And, he said a lot of big global companies are waiting to see if President Bush starts to kiss and make up with the big global partners that opposed the war: France and Germany.
At least on thing is getting cleared up as the President makes his whirlwind tour: The administration continues to support a strong dollar. Mr. Bush said this in France and in Russia, no doubt a conscious attempt by his team to counter the impression left by Treasury Secretary John Snow that the White House wants to weaken the dollar to help U.S. exports.
So what happens if the dollar doesn't keep falling or worse yet for exporters, moves higher again? What if businesses are so cautious that tax cuts and a stock market rally don't entice them to rush out and start investing again? What if consumers pay bills instead of buying new shoes with their tax rebates?
Then it will take a lot more than faith and hope to get things going again. And then those who are praying for yet another Federal Reserve rate cut may find those prayers answered.
Kathleen Hays anchors The FlipSide, airing Monday to Friday on CNNfn. As part of CNN's Business News team, she is also a regular contributor to Lou Dobbs Moneyline.
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