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The Honolulu Advertiser

Posted on: Monday, October 21, 2002

U.S. recovery faltering

By Carlos Torres and Alex Tanzi
Bloomberg News Service

WASHINGTON — The U.S. economic recovery is losing steam as consumer confidence drops and businesses place fewer orders, reports this week will probably show.

Consumer confidence dropped this month to the lowest level in nine years, a survey due Friday from the University of Michigan is expected to show. On the same day, a report from the Commerce Department is expected to show that orders for durable goods, big- ticket items meant to last at least three years such as cars, computers, and appliances, fell for a third time in the last four months.

Waning consumer and business demand means growth will probably slow in the final three months of the year, economists said. Companies including Gateway Inc., the fourth-biggest maker of personal computers, cut sales and earnings forecasts last week.

"There is a lack of momentum in the U.S. economy," said John Silvia, chief economist at Wachovia Corp. in Charlotte. "A lot of things are being put on hold until it becomes clearer where the economy is headed."

A weak job market, falling stock prices in recent months, and rising tensions in the Middle East have caused consumers to become less optimistic. The University of Michigan's index of consumer sentiment for October is expected to sink to 81, the lowest level since September 1993, from 86.1 last month, according to the median of 36 economists surveyed by Bloomberg News.

"The economy continues to be very soft, and we're facing an uncertain holiday season," Rod Sherwood III, Gateway's chief financial officer, said in an interview last week.

The company said its fourth-quarter loss will be wider than forecast and it cut its estimate for sales this year to $4.3 billion to $4.5 billion. Gateway had previously expected sales to be within a range of $4.5 billion to $5.0 billion.

Businesses are ordering less as sales flag. Durable goods orders in September are expected to drop 1.8 percent following a 0.4 percent decline the previous month, according the median of 43 economists surveyed. Excluding transportation equipment, orders were probably fell 0.4 percent.

The housing market, while strong, has probably peaked, two other reports on Friday are expected to show. New home sales probably fell 0.6 percent to an annual 990,000 annual rate last month from a record 996,000 in August, economists said a report from the Commerce Department will probably show.

A separate report from the National Association of Realtors is expected to show that 5.35 million previously-owned homes sold at an annual rate in September. While up 1.3 percent from the previous month, sales are off the record-setting 6.05 million pace reached in January.

The Federal Reserve's Beige Book, an anecdotal report card on regional economic conditions due Wednesday, is expected to support expectations the recovery may be stalling.

The report will acknowledge "the slowing in activity and the mixed performance" of the economy, said Joseph Abate, a senior economist at Lehman Brothers Inc. in New York.

Fed policy makers will use information from the Beige Book to base their decisions on the direction of interest rates when they next meet on Nov. 6. Economists expect Fed officials will hold the overnight bank lending rate at 1.75 percent, where its been since December, according to a preliminary Bloomberg survey.

The index of leading economic indicators, a gauge of the economy's performance over the next three to six months, probably declined for a fourth straight month in September, falling 0.2 percent, economists said. The Conference Board, a New York-based research group, will report on the leading indicators tomorrow.