Bank of America Investment Management releases "U.S. Economic Projections" report for the week ending Oct. 8, 1999.Note to editor: The "U.S. Economic Projections" report that follows is written each week by Dr. Lynn Reaser, chief economist The Chief Economist is a single position job class having primary responsibility for the development, coordination, and production of economic and financial analysis. It is distinguished from the other economist positions by the broader scope of responsibility encompassing the for the Bank of America
Bank of America (NYSE: BAC TYO: 8648 ) is the largest commercial bank in the United States in terms of deposits, and the largest company of its kind in the world. Private Bank. "U.S. Economic Projections" is a publication of Bank of America Investment Management, which is based in St. Louis, Mo., and is a division of the Private Bank. With offices in 53 cities, Bank of America Investment Management is the largest organization of its type in the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. today in terms of assets under management Assets Under Management (AUM) is a term used by financial services companies in the mutual fund and money management or investment management business to gauge how much money they are managing. and manages more that $120 billion on behalf of high-net-worth clients of the Private Bank. SAN FRANCISCO/ST. LOUIS, Mo.--(BUSINESS WIRE)--Oct. 1, 1999-- "U.S. Economic Projections" report for the week ending Oct. 8, 1999. Countdown to Another Fed Meeting Current Market Focus Investors and traders Traders Individuals who take positions in securities and their derivatives with the objective of making profits. Traders can make markets by trading the flow. When they do this, their objective is to earn the bid/ask spread. are counting the minutes leading to the Federal Reserve's policy-setting meeting on Tuesday, October 5. The Fed has now reversed two of the three easings it gave us a year ago, but still faces the challenge of moderating a strong economy. At this point, the policymakers seem inclined to stay on the sidelines On the sidelines An investor who decides not to invest due to market uncertainty. on the sidelines Of or relating to investors who, having assessed the market, have decided to avoid committing their funds. and hold rates unchanged. Although the economy continues to grow rapidly, productivity gains have stifled sti·fle 1 v. sti·fled, sti·fling, sti·fles v.tr. 1. To interrupt or cut off (the voice, for example). 2. any budding budding, type of grafting in which a plant bud is inserted under the bark of the stock (usually not more than a year old). It is best done when the bark will peel easily and the buds are mature, as in spring, late summer, or early autumn. inflationary in·fla·tion·ar·y adj. Of, associated with, or tending to cause inflation: inflationary prices; inflationary policies. Adj. 1. pressures. Additional drama surrounding sur·round tr.v. sur·round·ed, sur·round·ing, sur·rounds 1. To extend on all sides of simultaneously; encircle. 2. To enclose or confine on all sides so as to bar escape or outside communication. n. next Tuesday's meeting involves the bias the Fed is likely to adopt. The current neutral stance means different things to different people, and Federal Reserve officials are well aware of this confusion. Until the Fed can offer a more precise definition of its bias, it may not wish to send signals that might be misconstrued by the markets. Gold reappeared on the radar screen this past week after having remained dormant Latent; inactive; silent. That which is dormant is not used, asserted, or enforced. A dormant partner is a member of a partnership who has a financial interest yet is silent, in that he or she takes no control over the business. for a number of months. A week ago, the 15 European central banks European Central Bank (ECB) Bank created to monitor the monetary policy of the countries that have converted to the Euro from their local currencies. The original 11 countries are: Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal, declared they would end official gold sales for the next five years. With the U.S. and International Monetary Fund also out of the market, this means approximately 90% of the official gold reserves Gold reserves (or gold holdings) are held by central banks as a store of value. At the end of 2004 central banks and official organizations held 19% of all above ground gold as a reserve asset. will not be for sale in the near term. This news caused gold prices to surge to over $300 an ounce ounce, in zoology ounce, in zoology: see leopard. ounce, unit of measurement ounce: see English units of measurement. -- the highest level since spring 1998. Traders also began to fear the implications for inflation. However, gold prices represent the price of only one commodity and do not signal the onset of a widespread rise in prices. The dollar and yen were generally better behaved during the past week. The Bank of Japan indicated that it might pursue a more expansive monetary policy, although so far it has failed to take any steps in that direction. Nevertheless, the dollar spent most of the week around 106 yen, although it slipped to around 105 yen by the end of the week as new signs of U.S. economic strength spawned concerns about another Fed rate hike. U.S. indicators continue to reflect the economy's momentum. Manufacturing has shown signs of improvement, with durable goods durable goods Goods, such as appliances and automobiles, that have a useful life over a number of periods. Firms that produce durable goods are often subject to wide fluctuations in sales and profits. Also called consumer durables. orders rising in 12 of the past 15 months and the Purchasing Managers' Index posting a strong advance in September. Personal income also recorded a solid 0.5% gain in August, while consumer spending Consumer demand or consumption is also known as personal consumption expenditure. It is the largest part of aggregate demand or effective demand at the macroeconomic level. surged 0.9%. This spending took its toll on the saving rate, which dropped to -1.5%. The Week Ahead Economic reports will have a hard time winning the attention of the markets next week as the Federal Reserve convenes to decide the fate of U.S. interest rates. Do not expect the Index of Leading Economic Indicators index of leading economic indicators An index that is compiled by the Conference Board, a private-sector consulting firm. The index is designed to indicate the future direction of economic activity. , factory orders, consumer credit or jobless claims Initial Jobless Claims is a report issued by the U.S. Department of Labor on a weekly basis. This report tracks how many people have filed for unemployment benefits in the previous week. It is a good gauge of the U.S. job market. to create much of a stir. The usual anxiety will mount as the monthly jobs report is released on Friday. This number can be full of surprises, and Hurricane Floyd This article is about the 1999 hurricane. For other storms of the same name, see Tropical Storm Floyd (disambiguation). Hurricane Floyd was the sixth named storm, fourth hurricane, and third major hurricane in the 1999 Atlantic hurricane season. could distort some of the numbers such as the length of the average workweek. Anticipate another month with job growth of about 215,000 as the unemployment rate holds steady at a low 4.2% and wages rise by a relatively moderate 0.3%. The Bond Market The bond market remained nervous all week, with signs of strong economic growth snuffing out any attempt at a significant rally. While some firming of the dollar helped, gold's resurgence re·sur·gence n. 1. A continuing after interruption; a renewal. 2. A restoration to use, acceptance, activity, or vigor; a revival. was certainly not welcome. As a result, the yield on 30-year Treasury bonds remained above 6.0% all week, with Friday's strong reports on the Purchasing Managers' Index and consumer spending driving yields back to 6.13%. Next week's decision by the Federal Reserve will be pivotal for bonds. An interest-rate hike or even a change in bias back to tightening would drive yields even higher, while no change in rates and the maintenance of a neutral stance could spark spark, in electricity: see arc. (language) SPARK - An annotated subset of Ada supported by tools supplied by Praxis Critical Systems (originally by PVL). http://sparkada.com. a market rally. The Stock Market Worries about a hike in the federal funds rate Federal Funds Rate The interest rate at which a depository institution lends immediately available funds (balances at the Federal Reserve) to another depository institution overnight. also weighed on the stock market last week. The economy's positive performance and improving conditions bode bode 1 v. bod·ed, bod·ing, bodes v.tr. 1. To be an omen of: heavy seas that boded trouble for small craft. 2. well for corporate profit performance in the third and fourth quarters, but the market will have to wait for concrete earnings results before staging a rally. This means that the stock market also will focus almost exclusively on interest rates in the coming week. The Fed's decision on Tuesday will favor either the bulls or the bears. No doubt, Mr. Greenspan's thoughts have rarely mattered more. -0-
Indicator Index of Leading Economic Indicators - August
Release Date Tuesday, October 5, 10:00 a.m. EDT
July 0.30%
Forecast -0.1% (-0.2% to -0.1% range)
Comments
Do not be surprised to see a decline in this prognosticator of
economic activity. A number of components -- including the stock
market, building permits and consumer expectations -- contributed to
the expected overall dip. However, this index typically must decline
in four out of six consecutive months before being considered a
portent of recession.
Event Federal Reserve Open Market Committee (FOMC) Meeting
Date Tuesday, October 5, 2:15 p.m. EDT (expected
announcement)
Forecast No change in interest rates; bias remains "neutral"
Comments
Although the Federal Reserve remains concerned about the risk of
inflation, the ongoing benign performance of "core" prices (excluding
food and energy) suggests that it can allot the economy more time to
moderate under the pressure of higher long-term interest rates and a
more subdued stock market. Pay special attention to the announcement
of its current "bias." A change in bias away from neutral to
tightening could jolt the financial markets almost as much as an
actual rate hike.
Indicator Factory Orders - August
Release Date Wednesday, October 6, 10:00 a.m. EDT
July 2.30%
Forecast 0.8% (0.7% to 0.9% range)
Comments
The durable goods half of this report has already checked in with
a 0.8% increase. Look for a slightly smaller rise of 0.7% for
nondurable goods as the manufacturing sector continues its course of
recovery.
Indicator Initial Claims for Unemployment Insurance - Week ended
10/2/99
Release Date Thursday, October 7, 8:30 a.m. EDT
Prior Week 299,000
Forecast 292,000 (292,000 to 298,000 range)
Comments
Anticipate an easing in jobless claims after Hurricane Floyd
prompted a spike in filings by storm-affected workers. Expect claims
to return to a trend well below 300,000 per week, as the underlying
demand for labor remains strong with a relatively low level of
layoffs.
Indicator Consumer Credit - August
Release Date Thursday, October 7, 3:00 p.m. EDT
July $8.8 billion
Forecast $7.0 billion ($6.0 billion to $8.0 billion range)
Comments
A boom in auto sales and an overall 1.2% jump in retail sales
imply that households were comfortable assuming more debt during the
month, although not quite at the clip witnessed in July.
Indicator Nonfarm Employment - September
Release Date Friday, October 8, 8:30 a.m. EDT
August 124,000
Forecast 215,000 (200,000 to 240,000 range)
Comments
Scrutinize this report carefully for any signs of economic
slowing, but expect the report to reveal generally solid performance.
Look specifically at the manufacturing sector numbers, which have
swung wildly in the past two months due to seasonal adjustment
factors. Expect to see some indications of improvement in
manufacturing and mining, while the construction sector is likely to
reveal a slight easing. Be cautious in interpreting some of the
numbers, such as total hours worked, because of the possible impact of
Hurricane Floyd.
Indicator Unemployment Rate - September
Release Date Friday, October 8, 8:30 a.m. EDT
August 4.20%
Forecast 4.2% (4.1% to 4.2% range)
Comments
Expect to see additional signs of tightness in the job market,
although the aftermath of Hurricane Floyd may have distorted the
numbers significantly. The Bureau of Labor Statistics has indicated
that it adjusted its polling during September to minimize disruptions
to the underlying series.
Indicator Hourly Earnings - September
Release Date Friday, October 8, 8:30 a.m. EDT
August 0.10%
Forecast 0.3% (0.2% to 0.4% range)
Comments
Look for some pickup in wage growth in September after almost no
change in the prior month. This series thus far has failed to reveal a
substantial acceleration in wages, with hourly earnings still up less
than 4.0% from their level of a year ago.
U.S. ECONOMIC FORECASTS
Actual
1998 1999 2000
Real GDP (% chg.) 3.9 3.9 3.1
Consumer Price Index (% chg.) 1.6 2.2 2.4
S&P 500 Operating EPS (% chg.) -1.7 12 7
Fed Funds Rate (Dec. avg. percent) 4.75 5.25 5.5
30-year Treasury Bond Yield 5.1 5.9 5.9
(Dec. avg. percent)
The information and data provided in this analysis are derived from sources that we deem to be reliable and accurate. Any opinions expressed are strictly the opinion of Bank of America Investment Management and are subject to change without notice. |
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