The Economy: A Durable Slowdown

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A robust housing market has been keeping the economy afloat. But for how long?

It was a while back — seven rate cuts ago, to be exact — when the recovery was firmly scheduled for, well, right around now. By late summer, they all said, weíd be well on our way back to the pink (comments to that effect in this space are hereby blamed on everybody else). Well, nobodyís saying that anymore.

Not the Fed, which merely punted Tuesday with another quarter-point cut and another dose of boilerplate: "Öthe risks are weighted mainly toward conditions that may generate economic weakness in the foreseeable future." With Wall Street (not to mention the White House) begging for some kind of optimism, some indication that the Fedís work was done and the recovery was just a matter of time, Greenspan said, in so many words (198 to be exact): We could still go either way from here.

Not the markets, who after hearing the Fedís Robert Frost recital glumly sold off the Dow and NASDAQ into the newly restated unknown, restating their own frustration: Businesses arenít saying when business will pick up. The Fed, perhaps a little gunshy after misfiring both at the top of this cycle two springs ago and the bottom last fall, isnít saying either. The White House is sunny as heck, declaring that capital investment will be back by spring, to the tune of 3.2 percent GDP for 2002 — but they need it too badly to be believed.

Friday, manufacturing continued to sink into its personal tar pit, with the Commerce Department reporting that durable goods (expensive, long-lasting stuff like cars, air conditioners and computers) fell in the U.S. in July, again, this time by 0.6 percent. And Thursdayís weekly jobless claims hit a nine-week peak while the number of people collecting checks hit 3.18 million, the highest since September 1992.

There was, as always, a little silver in an otherwise black, black lining: New home sales rose 4.9 percent in July to 950,000 units, up from a revised 906,000 units in June, according to the Commerce Department. Analysts had expected a dip to 918,000 units, but instead the hike brought the housing number to near its March peak. Thatís good news for the consumer-spending watch — while the economy waits for businesses to come out of their post-bubble fetal position, it seems our nationís shoppers — who account for two-thirds of U.S. economic activity — may be able to keep the floor under this slowdown a while longer.

Besides, durable-goods orders had fallen a revised 2.6 percent in June. Which makes 0.6 percent look sort of like a comeback, if you squint your eyes hard enough.

And at the end of what was basically a narrow-range, up-down-up-down week, the markets (or at least the techs) were actually reasonably jazzed about Cisco, which after the bell Thursday announced that it is restructuring its business into 11 technology groups — and, more importantly, that it sees signs of its business stabilizing. At a lower rate, of course.

Of course, rival Lucent is still slashing costs, according to the WSJ, which quoted CEO Henry Schacht as saying, "These are uncertain times. We've got on our belts, suspenders, parachutes and skyhooks." But thatís Lucent. And at Microsoft, business marches on — itís presenting the finished version, or "gold code," of Windows XP to PC manufacturers on Friday. Along with a dead fish wrapped in newspaper.

That messianic Cisco news — with a boost from the housing report — produced a three-digit Dow rally and a proportionally larger one on the NASDAQ in the first half-day of trading Friday. Now, it is August, and it did look like rain in New York, which means the "big money" is nowhere the trading floor these days. But those in there investing are clearly feeling a little better all of a sudden about what they put in their portfolios going into a weekend.

Of course, when Wall Street celebrates according to the flatness of the bottom, you have to figure weíre going to be here a while longer.

But of course we knew that all along.