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Commentary > The Hays Files
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Keeping tab on the economy's temperature
Hoping the patient's vital signs continue to point to a continued, if slow and halting, recovery.
October 23, 2002: 3:25 PM EDT

Dissecting each and every economic report that comes out is sort of like taking your temperature every half hour when you're sick: needlessly obsessive perhaps, but allowing you to know quickly if your condition has taken a turn for the better - or worse.

So what do we see in the latest high-frequency economic numbers? A U.S. consumer who may be getting depressed, but whose immune system still looks strong enough to ward off the potentially damaging impact of rising mortgage rates - at least for now.

The ABC News/Money consumer comfort index dropped four points to a new cycle low of -23 in the October 20 week - the weakest reading since January 1994. All three of the main sub-indexes dropped: people's view of the national economy (74% say "negative"), their own personal finances, and buying conditions.

We did see the weekly chain store numbers (released on Tuesday) post a modest increase last week, so obviously consumers are not so very depressed that they've stopped going out and buying stuff. But they're not buying all that much. The chain store numbers continue to look a bit anemic, so the message of these two economic series is reasonably consistent.

As for the housing market, it may not be red-hot but it's definitely cooking along. Mortgage refinancing activity fell nearly 18% last week, according the numbers compiled by the Mortgage Bankers Association, but that still left the weekly index at a super-hot level.

The 30-year fixed mortgage rate jumped to 6.21% last week, from 5.96% the previous week. That's the highest level since July 26 but still a very attractive level. This led to a 12 percent drop in mortgage applications last week, according to the MBA.

Of course, the big question remains. We've seen a huge swing in bond yields from about 3.5 percent on the U.S. government 10-year note to about 4.25 percent this week (bond bulls who didn't move quickly must still be licking their wounds). Will those yields keep rising and take the still lovely mortgage rates higher with them?

That's why we keep taking the economy's temperature. Third quarter growth of about 3.5 percent is expected to fall below 2 percent. Will that be enough to keep stocks rising, and bond yields moving higher (as bond prices fall)?

The Federal Reserve says the economy is still sluggish, sort of what you'd expect from a patient who is trying to recover from an illness (recession) but taking a long time to get there. On Wednesday, the Fed released its Beige Book survey of the nation's economy, compiled from reports by its 12 district banks covering the period from mid-September to mid-October. Retail sales? Weak. Manufacturing? Stagnant, sluggish. Job market? Lackluster. Bright spot? Housing. Price hikes? Health care.

Slight shift on the consumer in this latest Beige Book. In its September survey, retail sales were characterized as "mixed," with auto and home sales strong. This time the Fed noted the obvious when it comes to auto sales, that they are slowing from those strong levels.

A bit more worried? Perhaps. The same could be said for the president of the Federal Reserve Bank of St. Louis, William Poole. Today he characterized the economy as "growing modestly, recovering all too slowly from last year's recession." Back in August, he characterized the economic expansion as "on track." Bob Ried, economist at Ried, Thunberg & Co in Connecticutt, said that August remark implied Poole saw no need to cut rates. He believes today's remarks suggest Poole is breaking rank with Fed's consensus view - "that all is well and policy is appropriate" - and is now in the minority camp with a dissenter like the Dallas Fed's Bob McTeer, who last month voted for a rate cut when the majority said, no, we're leaving rates unchanged.

As for the Big Monetary Man himself, Alan Greenspan, he gave a speech today extolling the economy's stunning productivity growth, saying this year it could hit its strongest rate in 30 years. And he scratched his head (figuratively) saying he's not entirely sure what's driving it or how long it will last. Bottom line, no hints on monetary policy.

So the debate among the economy doctors continues as to whether the patient's vital signs point to a steady, if slow and halting, recovery. Or if the nation's economic pulse is fading.  Top of page




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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.