Magazine article American Banker

Whither Rates? Flurry of Indicators May Point the Way

Magazine article American Banker

Whither Rates? Flurry of Indicators May Point the Way

Article excerpt

More and more signs indicate that the long-expected slowdown of the economy is under way. But that complicates the outlook for interest rates.

Some economists expect the cooling of business conditions to drive market rates lower by the end of the year. Others, pointing to strength in consumer spending, still expect the Federal Reserve to raise rates first.

This week will bring a surfeit of new data on the economy, including personal income, new home and automobile sales, the leading economic indicators, and the national purchasing managers survey.

The biggest day will be Friday, when the government's labor market and unemployment survey for September are due to be released. The financial markets have awaited them nervously each month since last winter.

If the number of nonfarm payroll positions created is lower than 150,000, the Fed's decision last week not to raise rates will look clairvoyant. If it is higher than 190,000, the pressure on the central bank to take anti-inflationary action will build again.

"We expect September payroll employment to be up 140,000, far below the year- to-date trend,"said Bruce Steinberg, manager of macroeconomic research at Merrill Lynch & Co. "Economic data are increasingly consistent with my view that bond yields can decline between now and yearend."

The data also point to earnings problems for companies sensitive to economic shifts. Durable- goods orders dropped 3.1% in August, it was reported last week, more than reversing a 1.4% gain in July. The decline was broad-based, Mr. Steinberg noted.

Also last week, initial unemployment claims reported for the week ended Sept. …

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