Look at the economic picture
Interview: Wells Capital Management---Schlossberg, Gary---Economist (slow)
>> there is fresh evidence out today that the u.s. economic expansion remains uneven. as we noted earlier new claims for unemployment fell last week for the second week in a row. existing home sales shot up 5% in august but the durable goods orders unexpectedly dropped. joining us from san francisco to look at the economic picture is gary slaus berg, chief economist at wells capital management.
>> good to be here.
>> let’s start with the durable goods numbers, perhaps it’s the most important we see here as far as what’s aed. what is your take of that figure and what do you expect for the future?
>> i think the headline number was misleading. the market did run with that surprising decline. that number tends to be volatile and it did follow two strong gains in june and july. if you look at the pattern over the last three months growth is actually accelerating, despite the decline we saw in august. looking at july and august compared to the second quarter, that strength extending to ta nondefense capital goods components excluding aircraft, a good proxy for investment spending led by technology. so i think the report was stronger beneath the surface than what the headline gave us credit for.
>> was it strong enough to really get,000 moving and create jobs here?
>> well, i think what it’s indicating is that even as growth is moderating from a very strong third quarter, it is broadening out a bit. manufacturing is actually participating to a greater extent than it had been earlier this year. some of that strength significantly coming from businesses. some build in inventories we think and strength in fixed investment centering on high tech. so hopefully that will help to carry the job market as some point.
>> but do you see demand improving enough for companies to start hiring any time soon or is this something that will drag out for months and months yet?
>> well, i think that it could drag out for a time. the labor market indicators suggested that on balance labor markets remain soft. there were a couple of glimmers there in the initial claims numbers. the mass layoff data suggesting that we may be approaching a bottom. but with pricing power still as weak as it is for corporations, that means that there is still a good deal of caution regarding new hiring and a more broad based stronger investment-led recovery.
>> the week-to-week numbers can be volatile, depending on what’s going on that week. and that week you had the hurricane.
>> we had the hurricane. the labor department said about half the 19,000 decline in initial claims were associated with the hurricane. if that’s the case we are still left with an initial jobless claims numbers below 400,000. the fact, though, is that the four-week moving average remains above 400,000. that threshold separating -- that rule of thumb threshold separating job gains from job losses. continuing claims on a four-week moving average basis were off their peak. again, a glimmer that perhaps we are approaching the bottom. but on balance the labor markets are the weak sister. they still remain fairly soft.
>> what’s your sense of growth forecast for 2004 here as the numbers continue to be quite choppy? do you think that economists are going to have to take a look at this, and perhaps begin to cut it, especially if we don’t start to see hiring? do you agree with that?
>> well, i think we have to count on businesses to pick up some of the slack going forward. we are hopeful that we see more of an inventory build. we are hopeful that investment spending will become more broad based and pick up some speed. the dollar is still weaker in the currency markets. foreign trade hopefully will be less of a drag on the economy. the tax cut will still have a stimulative effect on the economy. consumers may not play the role that they did this year in fostering economic growth, but we are hopeful that we’ll get some offset in business spending and foreign trade. housing activity from today’s numbers indicating that mortgage rates are still low enough to support demand. on balance we are looking for a pickup in growth, but still a subpar recovery. these growth rates are still fairly weak for the stage of the cycle we are in, when we normally get a burst of activity.
>> we have a burst of activity tomorrow as far as economic data is kerpd. what report are you paying the most attention to in the day ahead?
>> i think more of the attention will be on the sentiment index in tomorrow’s report. the odds are we’ll see little change in that second quarter growth number. most of the data already are in. we are looking for a growth rate of about 3.1% to hold with that final number. there will be attention on the sentiment index. the preliminary number did come in a bit weaker than expected. i think the market is hoping for something at least as strong as the preliminary number, if not a bit stronger. they will be looking ahead to next week when we have a full calendar of data, capped by that manufacturing survey, the i.s.m. survey of manufacturing on wednesday, and then the september job report on friday. i think the pattern of activity will be pretty much the same from those numbers. signs of some strength, moderate recovery in manufacturing. but the labor report on balance is likely to be weak, with another drop in nonfarm payrolls.
>> gary, thank i very much.
>> thank you.
>> chief economist at wells capital management. and we continue to follow this breaking story of h. carl mccall deciding to step aside from his role at the new york stock exchange, resign from the board as of monday’s meeting. ken langone, chairman of infamed associates commenting, someone very close to dick grasso, the former chairman of the stock exchange. he says he doesn’t plan to resign from the board when asked about this. of course, now that carl mccall has put his name out there as somebody who is leaving the board, the question is who is next to do so. ken langone says not him. as we mentioned earlier, gerald lavin declined to comment. hank paulsen said the nyse board should not disintegrate.
>> we are looking at live shots of the aftermath of today’s earthquakes. we’ll look at how it might affect business in the trading day ahead.
