Economic Data to Be 'Pretty Ugly'

A slew of data due out this week will shed light on how severely the Sept. 11 attacks have damaged the U.S. economy. And analysts warn the picture these key reports will reveal is not going to be pretty.

Eagerly awaited reports will be released on October unemployment and manufacturing and on economic growth in the third quarter, which ended Sept. 30. Analysts expect all to show sharp declines and to confirm the U.S. economy, which was weak before Sept. 11, sunk into a recession after the attacks. 

"The data are terrible," said Richard DeKaser, chief economist at National City Corp. in Cleveland. "We're getting our best reads right now on the aftermath of September 11 and it's looking pretty ugly." 

But DeKaser and other economists said the true question will remain unanswered: Will the expected bad readings imply an evolving, lasting trend or will they reflect one-time effects from the attacks that will soon disappear? 

``It still leaves unresolved questions of how much of this has been a knee-jerk reaction to heightened uncertainty that will gradually abate as time goes by and how much of this is really kind of the last straw breaking and things tumbling further,'' he said. 

Federal Reserve officials, whose next interest rate meeting is just 1-1/2 weeks away, have also voiced concern that it will be hard to judge how much to read into the data. 

``I don't know how we can have really great confidence in coming weeks about how to read the incoming data or how to make forecasts,'' Federal Reserve Bank of St. Louis President William Poole said in a Reuters interview earlier this month. 

Poole said he will be placing greater emphasis on anecdotal information when gauging the health of the U.S. economy. 

Jobless Rate Seen Rising 

Hands down, the most closely watched U.S. economic indicator this week will be the government's monthly employment report. The report released earlier this month covered the month of September but due to the way the information is collected, it reflected almost none of the Sept. 11 attacks. 

But the report for October, due out on Friday, will fully incorporate the effect of the attacks on the U.S. job market. 

With the airline industry paralyzed shortly after the attacks and the travel and leisure sector still hurting as edgy Americans stick close to home, hundreds of thousands of layoffs have been announced in the wake of the attacks. 

"That number will reflect the most negative economic fallout from the attacks so we'll get a pretty good sense of how bad it really was,'' Mark Zandi, economist at in West Chester, Pennsylvania, said. 

Wall Street economists on average estimated last week the U.S. unemployment rate climbed to 5.2 percent in October, up from 4.9 percent in the prior month. If realized, that would be the highest jobless rate since March 1997. 

Economists also estimated the number of jobs shrank an average 289,000 this month after sinking 199,000 in September. But some analysts think the number of jobs lost could be more than 300,000, noting layoffs at U.S. airlines alone after Sept. 11 have totaled nearly 100,000. 

In another piece of the economic puzzle, the National Association of Purchasing Management is expected to report on Thursday that its gauge of factory activity sunk in October, suggesting the year-long recession in the hard hit manufacturing sector continued unrelenting. 

And economists are eagerly awaiting Wednesday when the government will issue its first estimate of U.S. gross domestic product in the third quarter. That report is expected to show GDP — the measure of goods and services produced in the nation — contracted for the first time in more than eight years in the three months ending in September. 

Analysts on average estimated the economy shrank at a 1 percent annual pace in the third quarter following a slim 0.3 percent gain in the prior quarter. If GDP is in line with Wall Street expectations, it will be the biggest decline since a 2 percent slide in the beginning of 1991, when the U.S. economy was last in a recession, loosely defined as . 

Another Rate Cut Seen 

Other U.S. economic data set to be released next week include reports on consumer confidence, first-time unemployment benefit claims, personal income and spending, construction spending, car sales and factory orders. 

Most of that data is also expected to be weak and will be stacked onto some dismal reports on durable goods orders and home sales that were released last week. 

Against that backdrop, economists widely expect the Fed will cut interest rates at its next meeting on Nov. 6 for the 10th time this year. The Fed has already cut interest rates a total 4.0 percentage points this year to 2.5 percent, the lowest level in nearly four decades, to boost the economy. 

Many economists expect the Fed will opt for a quarter-percentage point cut instead of the half-percentage point reductions it has enacted twice since Sept. 11. The smaller move would leave the Fed more room to move later in 2001 and perhaps into 2002 if necessary. 

Economist Lynn Reaser from Banc of American Capital Management, Inc., in St. Louis said she expects a quarter-percentage point reduction but said the Fed would be forced to act more aggressively if there were more confidence-sapping attacks on U.S. soil. 

"First, consumer spending appears to be performing relatively well," she said. "Second, a great deal of monetary stimulus has already been applied to the economy and more fiscal stimulus also appears likely. And third, the Federal Reserve might want to keep some powder available for another rate cut in December."