Around the Street

The Economy: Have We Hit Bottom?


Has the U.S. economic downturn finally reached its low point? Maybe, judging by economic reports released on Mar. 27. A government report on personal income and spending in February showed some encouraging trends in consumption, while a widely followed gauge of the mood of the U.S. consumer showed a small rise in confidence.

The data provide "further evidence of a diminishing downdraft in the U.S. economy in the first quarter," says Action Economics.

What did Wall Street economists and strategists have to say about the reports—and other hot topics —on Mar. 27? Here is a sampling, as compiled by BusinessWeek staff:

Ted Wieseman, Morgan Stanley

The small decline in Personal Income (-0.2%) and small rise in Personal Consumption (+0.2%) in February were as expected, but an upward revision to January consumption pointed to a slightly stronger path for first-quarter consumption. We boosted our first-quarter [gross domestic product] forecast to -5.1% from -5.4%. Real [inflation adjusted] consumption fell 0.2% in February, as expected, but January was adjusted up to +0.7% from +0.4%. As a result, we boosted our first-quarter consumption estimate to +1.3% from +0.9%, which would at least be positive but still a meager rebound from the near-record 4.1% annualized decline seen in the second half of last year. Incorporating this upside along with other details of the fourth-quarter GDP revision released along with this report, we adjusted up our Q1 GDP forecast slightly.

The core PCE price index [inflation measure] was marginally better than we expected but above consensus, rising 0.24%. Combined with some small upward revisions to prior months, this lifted the year/year pace to +1.8% from the originally reported +1.6% in January (revised to +1.7%). Core inflation [excluding food and energy prices] has fallen about a half-point over the past six months, and we expect to see a more rapid and substantial decline through the rest of the year given the enormous slack building up in the economy.

Beth Ann Bovino, Standard & Poor's

The University of Michigan U.S. consumer sentiment index improved marginally to 57.3 in the final March reading, from 56.6 in the preliminary report. Markets expected 57.0 for the month. The index was 56.3 in February and was 69.5 in March 2008. The 5- to 10-year price index slowed 2.6% from the 2.8% preliminary reading and the 3.1% rate in February. It was 2.9% a year ago.

The data came in about as expected, and add to the growing list of data suggesting the economy might be nearing the bottom.

Natascha Gewaltig, Action Economics

Eurozone GDP is expected to fall by at least 1.6% in the first quarter from the preceding quarter. Yet, five months of improvement in the ZEW [German business sentiment index], higher readings [from purchasing managers' surveys], and three months of improvement in the Ifo's future expectations index suggest that confidence may have bottomed.

We still expect the ECB to cut rates by a further half-point next week, but there is risk of a quarter-point cut as the repo rate approaches new lows.

Philip Roth, Miller Tabak

The [U.S. stock] market cleared Monday's close and Wednesday's intraday high on Thursday, so the "consolidation" has an upward slope. The first-tier S&P 500 finished up 2.3% on the day, 1.2% above Monday's close. Not a lot of net progress was made between Monday and Thursday, but some progress was made in the face of a big short-term overbought condition; that is a bullish message for the medium term.

The market is still overbought short term and no doubt there will be more general pullbacks in the developing advance, but rather than trying to mastermind the timing and the magnitude, we prefer to emphasize stock selection and look to buy the dips.


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