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Mix-Ansicht- Recovery Highly Fragile - Cosa, 01.06.2002, 12:11
Recovery Highly Fragile
<font size="4">Recovery Highly Fragile</font>
We still remain suspicious of the positive spin being given to newly released economic numbers. In our view the strength being shown in some of the indicators is a function of some inventory restocking and some one-time events that we mentioned in previous comments. (See"Why We're Still Bearish", May 23, 2002). The weak labor market is threatening to undermine consumer spending while the outlook for capital spending still remains weak.
A good example of the inventory phenomenon is the rebound in global semiconductor billings, which has now increased for three consecutive months. Billings still remain far below the peaks reached two years ago while end markets are not showing any signs of strength. A Merrill Lynch survey released yesterday found that corporate IT budgets were flat this year compared to 2001. This is a downgrade from the survey taken earlier in the year indicating a 2 per cent rise. The survey also found that there is little hope for a fourth quarter spending boost that is widely expected and is built into the price of most technology stocks.
In addition some companies are indicating that their spending for software will also be weak. PC buying has also slowed as the usual upgrade cycle has been extended to about 40 months. This most likely means that the PC upgrade cycle that was expected this year will not happen anytime soon. Consumers will not come to the rescue as there is no big reason to upgrade PCs, and wireless also remains weak. Nokia recently reported softer trends in handsets, and this is not likely to reverse in the period ahead. All in all, we would not be surprised to see semiconductor sales soften again in the second half.
Factory orders, too, were disappointing despite a 1.2 % rise April new orders. The key nondefence capital goods sector, a proxy for capital spending, was flat after declining in February and March. This means that the crucial capital spending sector is not kicking in at a time when the weak labor market and poor earnings results are creating headwinds to continued consumer spending gains. It is therefor no coincidence that the six-month growth rate of the ECRI leading indicators peaked in late March and is now lower eight weeks later. In sum, the recovery is still highly fragile, and a renewed economic decline remains a string possibility. This is bad news for the market since it is highly overvalued even if the economy rebounds vigorously.
Quelle
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