interesting article from forbes magazine...
Carl Gutierrez, 02.07.08, 5:10 PM ET
Wall Street was served on Thursday with a full plate of difficult news on the U.S. economy. In fact, Thursday began hurting as early as Wednesday afternoon when Cisco Systems (nasdaq: CSCO - news - people ) warned of a rapid slowdown in U.S. and European orders, signalling that technology spending would weaken and fanning recession fears. .
Investors then woke up to learn that Wal-Mart Stores (nyse: WMT - news - people )?s January sales rose just 0.5%, well short of what Wall Street had expected.
The rest of the nation's retailers delivered more evidence of a stumbling economy, as companies provided their weakest January performance in nearly four decades, extending a malaise that has deepened since the holiday shopping season.
Looking beyond the retail figures, it is becoming increasingly clear that consumers wrestling with high gas and food prices, a slumping housing market, an escalating credit crisis, and a weakening job market retrenched, buying mostly necessities even when redeeming their holiday gift cards.
Of note, the weak numbers cut across all sectors including discounters like Wal-Mart Stores, teen retailers including Pacific Sunwear of California (nasdaq: PSUN - news - people ) and mall-based apparel chain Limited Brands (nyse: LTD - news - people ). Even more affluent shoppers are pulling back, hurting high-end chains like Nordstrom (nyse: JWN - news - people ).
On the economic front, initial jobless claims eased by 22,000, to 356,000, last week, a small ray of good news. But the pending home sales index fell 1.5% in December, a sign that the housing crisis has not yet ended.
"The risk of recession has certainly gone up," said Mark Vitner, an economist at Wachovia. Vitner added that he expects growth to remain lackluster until the housing market bottoms out around midyear.
Atlanta Federal Reserve Bank President Dennis Lockhart forecast said that with central bank interest rate cuts of 2.25 percentage points in place, the U.S. economy should be showing signs of recovery in the second half of this year.
The Federal Reserve acted "to avert a deep and protracted economic downturn," he said. But having acted decisively, rates are now down to a level he believes will support movement toward growth. At the same time, while current readings on inflation, especially from energy prices, have been elevated and are above his comfort zone, Lockhart said price pressures should moderate over the year.
That might be the case, but you couldn't tell from the bond market on Thursday. The yield on the benchmark 10-year Treasury note jumped to 3.77% in late trading from 3.62% late on Wednesday. Some of that might have been attributable to a rise in the stock market that could have lured money away from the fixed-income investments, but there seemed to be an element of inflation fear in that move.
Investor worries about the future value of the dollar were underlined by a weak auction of 30-year bonds. Demand for the longest-maturity U.S. paper was light, domestically and internationally, and interest rates shot higher. The $9 billion of bonds were sold at an average yield of 4.40%, up from the 4.36% price in late trading on Wednesday, and by the end of the day the return had risen to 4.52%, representing a nearly 3-point fall on the outstanding issues.
Reuters contributed to this article
Carl Gutierrez, 02.07.08, 5:10 PM ET
Wall Street was served on Thursday with a full plate of difficult news on the U.S. economy. In fact, Thursday began hurting as early as Wednesday afternoon when Cisco Systems (nasdaq: CSCO - news - people ) warned of a rapid slowdown in U.S. and European orders, signalling that technology spending would weaken and fanning recession fears. .
Investors then woke up to learn that Wal-Mart Stores (nyse: WMT - news - people )?s January sales rose just 0.5%, well short of what Wall Street had expected.
The rest of the nation's retailers delivered more evidence of a stumbling economy, as companies provided their weakest January performance in nearly four decades, extending a malaise that has deepened since the holiday shopping season.
Looking beyond the retail figures, it is becoming increasingly clear that consumers wrestling with high gas and food prices, a slumping housing market, an escalating credit crisis, and a weakening job market retrenched, buying mostly necessities even when redeeming their holiday gift cards.
Of note, the weak numbers cut across all sectors including discounters like Wal-Mart Stores, teen retailers including Pacific Sunwear of California (nasdaq: PSUN - news - people ) and mall-based apparel chain Limited Brands (nyse: LTD - news - people ). Even more affluent shoppers are pulling back, hurting high-end chains like Nordstrom (nyse: JWN - news - people ).
On the economic front, initial jobless claims eased by 22,000, to 356,000, last week, a small ray of good news. But the pending home sales index fell 1.5% in December, a sign that the housing crisis has not yet ended.
"The risk of recession has certainly gone up," said Mark Vitner, an economist at Wachovia. Vitner added that he expects growth to remain lackluster until the housing market bottoms out around midyear.
Atlanta Federal Reserve Bank President Dennis Lockhart forecast said that with central bank interest rate cuts of 2.25 percentage points in place, the U.S. economy should be showing signs of recovery in the second half of this year.
The Federal Reserve acted "to avert a deep and protracted economic downturn," he said. But having acted decisively, rates are now down to a level he believes will support movement toward growth. At the same time, while current readings on inflation, especially from energy prices, have been elevated and are above his comfort zone, Lockhart said price pressures should moderate over the year.
That might be the case, but you couldn't tell from the bond market on Thursday. The yield on the benchmark 10-year Treasury note jumped to 3.77% in late trading from 3.62% late on Wednesday. Some of that might have been attributable to a rise in the stock market that could have lured money away from the fixed-income investments, but there seemed to be an element of inflation fear in that move.
Investor worries about the future value of the dollar were underlined by a weak auction of 30-year bonds. Demand for the longest-maturity U.S. paper was light, domestically and internationally, and interest rates shot higher. The $9 billion of bonds were sold at an average yield of 4.40%, up from the 4.36% price in late trading on Wednesday, and by the end of the day the return had risen to 4.52%, representing a nearly 3-point fall on the outstanding issues.
Reuters contributed to this article
