Double Dip??
by Dan Sullivan, editor
The Chartist
Looking
back, consumers were fairly immune from the recession that began
in March 2001. Unlike prior recessions, households continued
to spend taking up the slack created by a decline in capital
spending. However, a few recent developments indicate that consumers
may have greater difficulty in the near future supporting the
ailing economy. One potential problem is soaring energy prices.
Crude oil is trading near $35 per barrel, up from $20 per barrel
this time last year. Unleaded gas and heating oil have nearly
doubled in the past year. The price of natural gas has almost
tripled. A potential war with Iraq and disruption of supplies
in Venezuela account for the run-up in prices but whether this
is a short-term or long-term problem remains to be seen. One
fact is certain the longer energy prices remain high, the greater
the burden on the consumer. In an earlier research report, the
Dallas Federal Reserve found that rising oil prices preceded
nine of the last ten recessions.
Whether it's oil or
health care, consumers living on a tight budget will feel the
pinch of higher prices and likely cut spending in other areas.
There is already evidence of this happening. Of the 53 retail
companies tracked by First Call, 51 reported that same stores
sales "fell short of what were very modest expectations".
Another wrinkle in the outlook for consumer spending is slowing
wage growth. The annual rate of change in wages has been gradually
declining over the last two years. The most recent data shows
civilian wages increased 2.9% year over year. This is not only
the lowest increase since 1994 but down significantly from the
4.1% rate of growth during the first quarter of 2000. In January,
average hourly earnings came in at $14.98, unchanged from December.
This is the first time since April 1993 that wages stayed the
same from one month to the next. If prices continue to rise without
a proportionate increase in wages, it could trigger another recession.
The rebound in earnings,
which was supposed to happen by mid-year 2002, has been moved
forward to mid-2003 if then. Analysts are already trimming earnings
estimates for the first and second quarter. Since January 1st,
first quarter estimates for the S&P 500 have been reduced
from 11.7% to 7.6%. Estimates for the second quarter have been
lowered from 10.9% to 7.7%. Another concern is that the pace
of negative pre-announcements for the first quarter has picked
up. The number of preliminary earnings estimates coming in below
expectations is about 2.4 times higher than estimates coming
in above expectations.
Editor's Note: Dan
Sullivan is editor of The Chartist, P.O. Box 758, Seal Beach,
CA 90740, 1 year, 17 issues, $175. The Chartist stands out as
one of the few newsletters who have created real-world portfolios
to track its investment advice. This sets us apart from other
investment advisory services. These accounts are not "hypothetical"
or "model" portfolios, but real money being invested.
www.TheChartist.com.
