Industrial Production

By Author: rdfgdr
Total Articles: 105
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The past week should have brought some answers to a market fraught with uncertainty, but it merely raised more questions. Retail sales were strong, but does consumption have any momentum given the precipitous decline in the Michigan index of consumer sentiment? Industrial production fell a fourth consecutive month, but is the manufacturing industry recovering on the shoulders of January's interest rate cuts? Wholesale price inflation accelerated, but does that mean the Federal Reserve will hold off on the aggressive action that the market was counting on?

With these questions and fresh concerns over corporate earnings weighing on traders' minds, major indices were giving up some recent gains in Friday's trading. The market continues to seesaw as traders grapple with ambiguous signals emanating for financial and economic fronts.
Largely as a result of the muddled economic environment, recent rallies in the stock market have been sparked not by fundamental changes in trader sentiment, but instead by the occasional upbeat earnings report or encouraging sales forecast. Ciena is the latest example. However, it seems ...
... that for every ounce of positive news, the market gets a pound of negative corporate earnings results. Nortel, Dell, and Hewlett Packard are behind the market's pull back this time. With profit growth in some segments of the tech industry falling fast, stock prices shouldn't be far behind.
A sustained recovery in equity markets will require unequivocal evidence that the profit picture is improving. Until then, traders will continue eyeing economic releases in hopes that they prompt the Fed to loosen monetary policy further.

The consumer price index for January, which the Bureau of Labor Statistics will release Wednesday, will attract significant attention, especially given the recently reported acceleration in wholesale price inflation in January. Presumably, the anecdotal post holiday deep discounting among retailers, several of which will report earnings next week, should show up in the CPI numbers.

However, if consumer price inflation exceeds expectations of 0.3% by a wide margin, it could potentially affect the course of monetary policy.
Greenspan' s testimony in particular altered expectations regarding the timing and extent of future interest rate cuts, as the Fed Chairman noted that "the exceptional weakness so evident in a number of economic indicators toward the end of last year (perhaps in part the consequence of adverse weather) apparently did not continue in January." Some have gone as far as to suggest that January marked a turning point for the economy. The index of leading indicators, slated for release Thursday, is expected to rise for the first time in three months, a sign that the economy may indeed be on the rebound.

However, we're not in the clear just yet. Next week's help wanted index may provide further insight into labor market dynamics, which remain somewhat of a mystery given recent swings in jobless claims and January's ambiguous employment report.