No Relief For Markets in New Reports

Having been stuck in a depressive tailspin since their snubbing by Alan Greenspan and the Fed on Tuesday, the stock markets are desperate for one of two things: Some good news about corporate earnings, or some bad news about the economy — bad enough to force Greenspan to jump into rate-cutting with both feet.

Thursday they got neither. UPS warned about its first-quarter profit estimates. Procter & Gamble announced 9,600 layoffs as part of further cost-cutting. And two economic reports — the index of leading economic indicators and the weekly state unemployment claims — told Greenspan exactly what he's been telling the markets: The economy, though weak, does not appear to be heading into a recession.

So the markets sped up their stampede, driving the Dow into official "bear" territory and testing new 9,200 lows with a 250-point morning slide as the selling continued to spread beyond tech into Old Economy blue-chips. TIME senior economics reporter Bernie Baumohl checks the numbers and assesses the current state of things economic.

TIME.com: The LEI dropped 0.3 percent in February, down from a 0.5 percent gain in January. Is this the bad news the markets have been waiting for?

Bernard Baumohl: No. The LEI, first of all, is not the most respected gauge among economists — it's not thought to be all that accurate. But these days, analysts will jump on any indicator, so the LEI certainly had an impact.

At its best, if the LEI drops three straight months, it's supposed to augur a recession. But this is only the first one. So what you get is what the prevailing view at the Fed is — the economy is weak. But there's no recession at the moment, and there's not likely to be.

Add to that the Labor Department reporting that state unemployment claims dropped last week to 379,000 — still a high number that indicates a weak economy, but lower than last month — and it's still possible to argue that the worst of this slowdown happened in the last two months of 2000, and that the worst is behind us.

The markets obviously disagree.

BB: Wall Street is convinced the worst is still ahead, and that the Fed has room to cut a lot more than it has. They don't see any relief for earnings, and they think that's going to lead to more layoffs down the road once companies have to cut costs further to be profitable.

They're also looking at Japan, and the fact that despite the U.S. slowdown and falling interest rates, the dollar is still strong — which means that foreign investors see even worse ahead for their own economies. And if the dollar stays strong relative to the yen and the euro, that means still more pain for U.S. manufacturers, who'll have more trouble competing with lower-priced foreign goods. In Wall Street's eyes, all that spells doom.

Who's right?

BB: We don't know. So far, the indicators, especially unemployment and consumer confidence, seem to bear Greenspan out that the worst is over. But if the falling markets do wind up really rupturing consumer confidence, then all of Wall Street's nightmares could come true.