CNN/Money One for credit card only hard offer form at $9.95 One for risk-free form at $14.95 w/ $9.95 upsell  
News > Jobs & Economy
Don't worry ... don't be happy
The economy isn't in trouble. But it's not going gangbusters either.
November 26, 2004: 9:21 AM EST
By Paul R. La Monica, CNN/Money senior writer

NEW YORK (CNN/Money) - The economy is great. Wait, it stinks. Uhh. Scratch that.

Fact is, it's tougher than ever to know for sure. The euphoria surrounding the blockbuster October jobs report earlier this month has quickly faded and has been replaced by concerns about the weakening dollar and rising oil prices.

And now investors, who bid up shares sharply before and after the Presidential election, are threatening to take back the gains.

"This whole year has been one of rapid sentiment reversals," said Craig Callahan, president and chief investment officer of ICON Advisers, a mutual fund firm. "For three weeks investors think things are OK and then the next three weeks people think everything is bad."

So have conditions really taken a drastic turn for the worse in just two weeks or is the market being overly skittish?

Several Wall Street watchers think that things aren't nearly as bad as they seem. But many of the same observers also caution that the economy isn't exactly in fantastic shape either.

"We're not in trouble. But at the same time it's quite clear that there is no sign of a sustained pickup in growth in sight," said Anirvan Banerji, director of Research of the Economic Cycle Research Institute. "Our conclusion is don't worry, don't be happy."

The blah economy

Along those lines, Banerji said that fears about relatively high oil prices possibly putting a dent in consumer spending are a bit overblown. But he said the greenback's slide is particularly worrisome because it has sparked fears of inflation.

Related stories
Hays: Dollar promises
Weak dollar 101
Consumer prices rise
Fed raises again, but what's next?
Job growth soars

As the dollar weakens, it makes the price of imported goods more expensive. And if inflation picks up, one way the Federal Reserve might combat it is by raising interest rates.

David Joy, capital markets strategist with American Express Financial Advisors, said he expects the Fed to keep raising rates next year. The federal funds rate currently stands at 2 percent. Joy thinks that it could be between 3.5 percent and 4.5 percent by the end of 2005.

Joy said that the economic impact of rate increases would probably be minimal as long as the Fed continued to engage in a series of small 25 basis point boosts. But he still thinks that the economy probably won't be as strong in 2005 as it was this year.

"I would like to think that the Fed would raise rates in a measured way. I don't think they'll be really aggressive," he said. "The economy is OK but the risk of rates moving higher next year could cause economic activity to slow down."

Still, a possible counter to any rate-hike-induced sluggishness is the fact that the recent pickup in job growth is expected to continue, albeit probably not at as robust a pace as in October. Joy thinks that payroll gains of between 150,000 and 175,000 a month, on average, for the next few months is doable.

American Express Company
Economic Indicators
Federal Reserve
Mutual Funds

Harry Clark, president of investment firm Clark Capital Management Group, agrees that the worst is probably over in the job market. "Employers were afraid to hire until the election was over because they we're afraid of higher taxes. We should see consistent, stable job growth for the next several months," he said.

To that end, the most recent weekly jobless claims figures showed a lower than expected number of people filing for initial claims while the number of people staying on unemployment benefits fell to a 3-1/2 year low.

And Callahan said that the housing market, which has held up extremely well during the past few years, should remain strong since interest rates are still relatively low. Along those lines, new home sales figures for October, also reported this week, were better than expected.

So all in all, doom and gloom scenarios for the economy next year seem a bit foolish. But so do predictions of tremendous economic prosperity.

"The economy is going to be benign. It's not going to be weak but kind of blah," said Clark.  Top of page

  More on NEWS
Sturm Ruger has cut 700 jobs in the last year
Trump administration seeks to require more people to work for food stamps
Strum Ruger has cut 700 jobs in the last year due to plunging gun sales
Warren Buffett's annual letter: Berkshire got a $29 billion gift from new tax code
Delta and United join list of companies to cut ties with the NRA
As the Olympics end, South Korea asks: Was the cost worth it?

graphic graphic