Short Term Market Jitters Defy Bullish Consensus Outlook

Despite the psychological devastating effects of war, tumultuous and nervous markets, and growing concern over a global virus of unknown effects (SARS), the Consensus remains steadfast in its belief that the economy is posed to perform admirably in the second half of the year and into 2004. Granted, the existence of conditional scenarios is as ubiquitous as hotdogs on opening day in baseball; there does exist fundamental reasons for thinking optimistically. Most forecasts in the Consensus remain essentially unchanged from last quarter's. Real growth is forecast to run at a 2.7% rate. In juxtaposition, Richard DeKaser from National City Corp., explains, subscribe heavily to the view that war-related uncertainties are the principal impediment to superior economic performance. Further, we are still expecting a relatively a brief war, minimal damage to oil supplies, and a better post-war outcome than seems to be generally accepted. If these developments play out in the next month, as we believe, financial markets and economic activity will respond with alacrity. Nicholas Perna from Perna Associates believes, with Iraq is brief with no major complications. In addition, the threat of terrorism is subdued and kept far away from the world's major economies. Doug Duncan from Mortgage Bankers Association adds, is concluded relatively soon and the full Bush Tax Plan is implemented before the August recess. CONSUMER MARKETS Despite consumer confidence being rattled of late, Real Personal Disposable Income and Real Personal Consumption Expenditures are predicted to grow at a healthy 3.9% and 4.0% rate, respectively. Undoubtedly, the public sector plays a prominent role in this outlook. Both aggressive fiscal spending-spurred in part by increased defense spending associated with the conflict in Iraq and the threat of terrorism and an accommodative Monetary Policy will impact the economic outlook in a positive way. When you consider that household expenditures account for roughly $2 of every $3 of economic activity; it is hard to imagine a solid growth scenario without their active participation. And since 9-11, consumers have been anxiously awaiting a reason to celebrate. Total Light Vehicle sales are predicted at a 16.8 million rate in concert with Housing Starts holding their own at a respectable 1.6 million run rate. LABOR MARKETS Job growth and unemployment are called to strengthen as the year unfolds. The Nation's unemployment rate is anticipated to improve slowly during the year, inching down 1 or 2 tenths of a point each quarter. INFLATION War and inflation generally go hand and hand. The Consensus, however, predicts relatively mild price pressures as the year unfolds at a run rate of less than 2%. Probably the greatest threat of inflationary pressures rests with disruptions in the Middle East oil supply chain. Needless to say, this will be a closely watched variable as the war is orchestrated. INDUSTRIAL SECTOR The Industrial Sector exhibits a tremendous sensitivity to the psychology of markets. Still, the Consensus expects the Capacity Utilization rate to continue to improve throughout the year. Real Non-Residential Fixed Investment is predicted to run at a 6. …

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