Americans adopt a pokerfaced demeanor when fueling their vehicles, digging into their wallets and assuring themselves that things will be all right, even as they top off their guzzlers with $50 worth of supertest.
Yet recent economic trends, and piecemeal evidence from retailers, point to signs that some consumers are anxious. The suggestion is that buyers who have been the engine of global expansion may be reaching a limit.
Watch for Monday’s report of May’s leading economic indicators to show a drop of 0.2 percent, the fourth decline in five months. That’s the prediction of economist John Silvia, who says such dismal numbers point to economic slowing later in the year.
“The problem is the manufacturing sector, which clearly has lost momentum. It has been hurt by the trade deficit and become the weakest aspect of the economy,” said Silvia, of Wachovia Corp. in Charlotte, N.C.
An additional factor, he said, is what Federal Reserve Chairman Alan Greenspan describes as a “conundrum,” in which long-term rates have failed to rise despite a sharp increase in short-term rates. “The conundrum in rates is considered a distortion, but it bears watching,” said Silvia. “If the leading indicators are correct, we may see growth fall to a 2 percent rate later in the year. For now, however, our forecast is that expansion will continue at a rate between 3 percent and 3 percent.”
The housing industry remains the foundation of the expansion, and there are few signs of slowing. Watch for Thursday’s report of May existing home sales and the following day’s new-home sales to show near-record volumes.
The stock market has seen major averages move into positive territory for the year, and some analysts say that is a precursor for further rallies.
Bannockburn, Ill.-based mutual fund manager Henry Van der Eb, however, says the situation means that equities “are back at the top of their trading range, and also that markets are balanced on the head of a pin.”
Any drop in petroleum prices could push stocks higher, but a move above $60 a barrel would spark a selloff, said Van der Eb, of the Gabelli Mathers Fund. Another danger, he said, is that the Fed could boost short-term interest rates four more times, as some policy-makers are suggesting.
His bottom line:
“The forces in the market are at equilibrium, and things could swing either way.”
Comments are no longer available on this story