With football season in its opening drive, the Federal Reserve got into the action last week by punting a decision on winding down some of the emergency measures aimed at rescuing the economy. Even the Fed's best economic minds can't forecast the likely outcome of the latest mess Congress has backed itself into. Between the battle over the debt ceiling and the threat to shut down the federal government, once again there's risk of economic damage, courtesy of our elected officials.
So, data takes a back seat to the Congress for now. As for the rest of us, we might be better off walking than riding in this car.
- The Conference Board reports on September consumer confidence: Tuesday at 10 a.m. (all times Eastern)
- The Commerce Department reports on August sales of new homes: Wednesday at 10 a.m.
- The Commerce Department issues revised second-quarter gross domestic product: Thursday at 8:30 a.m.
- The Commerce Department reports on August personal income and spending: Friday at 8:30 a.m.
The cost of incompetence
The risk is that the economy hits a speed bump or worse because of the budget or debt limit fights (or a combo of both). Economist Diane Swonk, with Mesirow Financial, issued a report acknowledging that economic growth has slowed from a 2.5 percent annual pace in the spring to an estimated 1.8 percent growth rate in the most recent quarter. Swonk questions, "Do we want to risk stall speed again in the fourth quarter just because our elected officials can't bring themselves to negotiate on our behalf? Incompetence is a cost that cumulates over time."
There's upside risk, too
On the other hand, the Fed continues to pump $85 billion a month into the economy, reaffirming that policy just last week. The asset purchases are aimed at boosting growth and lowering unemployment. It's the economic equivalent of a performance-enhancing drug that the Fed has been applying at that dosage for a year now. Can the patient perform, or is it at risk of a big letdown?
Stuart Hoffman, chief economist at PNC Financial Services Group, says the Fed's decision should help the housing market and keep auto sales revved up. If the federal funding issues are resolved, Hoffman sees upside for the economy. "This thing may pass as just another worry that didn't occur, and the economy may go into the holiday period with that settled" and performing fairly well, Hoffman says. Meantime, "Washington will take center stage, but it's their ripple effect on the economy that the Fed will be watching, but none of us will know about that for a couple months."
Enough growth for stocks?
While the Fed has tended to be overly optimistic on growth, something Chairman Ben Bernanke acknowledged again during last week's news conference, it is upbeat on growth for 2013. The Federal Open Market Committee, which decides interest rate policy, forecasts that gross domestic product will rise about 3 percent next year.
Hugh Johnson, chairman and chief investment officer for Hugh Johnson Advisors, thinks stocks should continue their upward trajectory through next year, barring something truly bad. Says Johnson, "Short-term interest rates will probably be fairly flat, longer-term interest rates might rise a little but not much, as they ordinarily do in a cycle." He adds that 2014 "looks like it is going to be a positive year. But you obviously always have to be braced for the unexpected."
Housing's slower growth
It is generally agreed that housing needs to continue to recover for the broader economy to do better. This week, the focus is on new home sales. Economist Scott Anderson, with Bank of the West, looks for a monthly increase. Even so, he's concerned about the sharp jump in mortgage interest rates since May. "Such a swift increase in the cost of financing is bound to have some negative impact on housing demand, especially if not supported by stronger job and income growth," he wrote in a report.
The National Association of Realtors reports that sales of previously owned homes rose 1.7 percent in August. The trade group expects the 2014 sales pace to be below this year's level, partly reflecting the impact of rising rates.
This week in business history: The privatization of space
The exploration of space is taking an increasingly entrepreneurial look, with a number of companies now in the -- dare we say -- space. On Sept. 28, 2008, Space X launched the Falcon 1 spacecraft into orbit. The company founded by Elon Musk was the first private venture to place a spacecraft into orbit. Since then, SpaceX has been supplying the international space station, with plans to send humans into space and eventually colonize Mars.
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