Economic newsletters turn upbeat but keep an eye on Washington
Many brokerages, banks, and economic-research firms publish periodic newsletters on economic trends. As a service to readers, and without endorsing any particular views, the Monitor presents excerpts from some of these newsletters.m
We had expected a decline in the January index of producer prices, but hardly such a big one. The 1 percent drop is, after all, the largest since the current index first came into use in 1947. Moreover, it's not due to one or two large price changes; prices fell across the board.
It's probable that the seasonal adjustment procedure introduced some distortions this year. For some years, producer price increases tended to bunch together in January. They clearly didn't this year, so applying the seasonal adjustment process derived from the earlier pattern turned what would have been a decline of 0.5 percent into one of 1 percent. One other factor behind the huge decline may be the incorporation of new industry detail. In the past, the producer price index has been criticized for relying on list rather than actual transaction prices, thereby failing to reflect price-shaving, particularly in capital goods industries. It's possible that the addition of 210 new series partially corrects for such earlier deficiencies. In any case, the January producer price index is evidence of a low inflation rate that is genuine, even if overstated.
- Citibank, New York
Whether inflation continues to slow or reaccelerates beyond 1983 will depend critically on the policies pursued in Washington. Despite the increasingly apparent success of the Federal Reserve's anti-inflation stance, its continuation cannot be assumed. A fundamental uncertainty in the extent to which policy can continue to be as heavily oriented toward disinflation as it has been. Monetary authorities will be operating in a climate of worry that recovery will be subpar and in which unemployment will be hovering at or near its postwar high.
- Morgan Guaranty Trust Company, New York
So far this has been a a beautiful rolling bull market. Each week some new stock groups come to the forefront while others that had been strong run into some profit taking. For example, (the week of Feb. 7-11) chemical, steel, and farm equipment stocks forged ahead while semiconductor and airline stocks got their wings clipped. The Dow Jones industrial average is up near the 1100 level for the second time in history. We would not be surprised to see the market regroup once again and build up for another assault on this 1100 barrier.
- Advest Inc., Hartford, Conn.
Now that housing starts and auto sales are beginning to pick up and inventory liquidations are abating, the long-awaited recovery in the chemical industry seems finally at hand, heralded by improving order trends in select product lines. Should our forecast of a moderate economic recovery, accompanied by a 25 percent rise in auto sales and more than a 40 percent increase in housing starts prove correct, revenues for the chemical industry could advance 8 percent in 1983. Because of the substantial leverage generated by last year's drive to reduce head count and capital expenditures, the industry's operating income could rebound 35 to 40 percent in 1983.
- Dean Witter Reynolds, New York
Mutual funds investing primarily in gold mining, processing, and financing issues moved to the forefront of the performance stage in the six-month period ending Dec. 31, 1982. This market a return to the dominant positions they had occupied consistently for some 20 months up to the end of December 1980.
The gold-tinged funds filled the to0p five places in the latest six-month tabulation, with gains for the period ranging from 94.6 percent to a high for all funds covered in this latest listing of 145 percent. Overall, this was one of the highest performance records in any six-month period in mutual fund history.
Individually, the five leaders in this period included United Services Gold Shares, up 145 percent; Strategic Investments Fund, up 141.6 percent; Lexington Gold Fund, up 105.4 percent; Research Capital Fund, up 98 percent; and International Investors, up 94.6 percent.
-- Wiesenberger Investment Companies Service, New York
An explosion in tax-exempt municipal bond issues guaranteed by triple-A financial institutions has given investors the chance to buy high-grade bonds at puzzlingly high yields, and they've leaped. As much as 15 percent of 1982's record-breaking $75 billion new issue volume consisted of bond insurance or bank letters of credit. Safety-conscious and rating-sensitive individuals, bond funds , and unit trusts have been heavy buyers.
Strong demand has encouraged more issuers to use third-party guarantees to reduce interest costs on new borrowings. Guarantees have also made it possible for underwriters to bring to market issues which, due to their small size, novelty, complexity, or risk, might not otherwise have been marketable.
- Gabriele, Hueglin & Cashman Inc., New York
Although some chartists continue to warn of potential sizable correction in the stock market, all sell-off attempts have been arrested by eager bargain hunters. Aside from reflecting huge buying potential among private and potential investors, this recurrent example of market volatility emphatically trumpets a stronger-than-expected economic recovery in 1983. Therefore, despite the realization of an emerging economic rebound, the stock market has much to look forward to. We believe the nation is on the threshold of one of the strongest economic recoveries in its history.
- Wedbush, Noble, Cooke Inc., Los Angeles