Consumers Get Down To Basics
Wednesday, September 03, 2008SUSIE GHARIB: The Federal Reserve says the U.S. economy remains slow, as consumers focus their spending on essentials. That's the upshot of the central bank's latest Beige Book survey of regional economic activity. The survey of the Fed's 12 districts shows household spending was slow across the nation last month. Most areas reported pressure to raise prices because of higher commodity costs. And housing remained soft in most areas. The Beige Book also noted labor market conditions were somewhat softer amid a general pullback in hiring. The Fed's interest rate setting committee meets September 16th. It's expected to hold rates steady at 2 percent. Well, the weak economy is also weighing on the stock market. The Dow and S&P are both down 13 percent so far this year, and September is off to a slow start. As Erika Miller reports, many Wall Street experts don't expect a market rally anytime soon.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: Individual investors are not the only ones growing anxious about the outlook for stocks. Even professionals like Alec Young of Standard & Poor's are finding it difficult to forecast market direction.
ALEC YOUNG, MARKET STRATEGIST, STANDARD & POOR'S: There's tremendous uncertainty about whether the U.S. economy will or won't, enter recession, when corporate profits will bottom out, how the housing market, the job market, the credit markets will all fare as we move through the end of the year.
MILLER: The calendar may also be increasing anxiety. According to the Stock Trader's Almanac, since 1950, September has been the worst-performing month for the Dow and the S&P 500, posting average declines of 1 percent and 0.6 percent, respectively. 2008 is also an election year, layering on more uncertainty. Surprisingly, the stock market does not seem to be benefiting much from a big drop in energy prices.
YOUNG: I think equity investors are taken aback by the magnitude of these drops in crude oil, and the fact that they really do reflect a very dire global growth outlook.
MILLER: That helps explain why many strategists, including Tony Dwyer, think it will be difficult for stocks to mount a sustainable rally this year.
ANTHONY DWYER, EQUITY STRATEGIST, FTN MIDWEST SECURITIES: In our view, what will really get the stock market on solid footing is: number one, when the election is over; and number two, the credit market -- most importantly, the credit market improves. We are an economy that is based on debt.
MILLER: But some investment strategists, like Abby Joseph Cohen of Goldman Sachs, remain steadfastly bullish. She expects the S&P 500 to rise nearly 10 percent between now and the end of the year.
ABBY JOSEPH COHEN, PRES., GLOBAL MARKETS INST., GOLDMAN SACHS: First of all, the economic data, while are not good, we think are already priced into the stock market. The economy is growing a little more rapidly overall than many people had feared because of strength in exports, technology and so on.
MILLER: In addition, the bulls say falling energy prices should help mute inflation concerns as well as give consumers more discretionary dollars. There's even hope for the beleaguered housing market.
COHEN: The most recent data make it very clear that there are many different real estate markets within the United States, and in many of them, prices seem to be flattening out somewhat.
MILLER: Near term, however, the August employment report is expected to drive market direction. Friday's data will provide an important indication of hiring, as well hint at the outlook for consumer spending. Erika Miller, NIGHTLY BUSINESS REPORT, New York.
