When central bankers worry about inflation, they focus on a hydra-headed monster: rising commodity prices, an upsurge in the tab for gasoline and cigarettes and the tight labor market. Of the group, it is wage costs that are the most difficult to throttle. Which brings us to Friday, when a fresh reading will occur for the labor market, with the October employment report. Chicago economist Robert Dederick sees it showing unemployment holding steady, at 4.2 percent, while payrolls grow by 250,000 positions, reversing a drop of 8,000 in the previous month. “Much of the weakness in September was caused by Hurricane Floyd, plus a bit of slowing in the service sector,” said Dederick, a consultant to Northern Trust Corp. Although the rebound in October will be substantial, he said, “The trend is beginning to tilt down just a bit.” Despite that, he predicted, Fed policymakers will raise rates Nov. 16.
INTEREST RATES
EUROPE’S MOVE
Global investors waiting for Fed action may be in for a double whammy on interest rates, with the first move taking place on the Continent. Chicago investment manager William Hummer says European central bank policymakers will boost their short-term lending rate Thursday by a half-point, to 3 percent, to respond to an upsurge of growth. “Markets are fully expecting this, and if the Europeans don’t act, it would be disruptive,” said Hummer, of Wayne Hummer & Co. He said that action “will be a prelude to the Fed boosting rates by a quarter-point,” to 5.50 percent. Hummer said it is dangerous to assume the tightening cycle will be over after that move, because “the Fed will keep doing this until a slowdown occurs.”
ECONOMY
CHURNING OUT THE DATA
A long list of indicators this week includes the October index from the National Association of Purchasing Management on Monday; September personal income and spending, also Monday; September leading economic indicators, Wednesday; October car and light truck sales, also Wednesday, and September consumer credit, Friday. Keep an eye on the purchasing managers report, which could show signs of rising costs for industrial materials. On Friday, the equivalent index from the Chicago purchasing managers showed a stronger-than-expected leap to 58.8, from 53.8 in September.
STOCK MARKET
WAITING, WATCHING
With October and its extremes of volatility out of the way, the question is whether the stock market can mount a decent year-end rally. With the shadow of Year 2000 computer concerns, skeptics say it’s a great time to salt away cash and–as Cubs fans declare–wait until next year. The key is whether the broad market can regain its technical health, at a time when 52-week lows for stocks have taken a crushing lead on the number of new highs. Beyond that, it’s a question of whether the reconstituted Dow Jones industrial average can meaningfully surpass its record close of 11,326.04, set Aug. 25. It ended Friday at 10,729.86.
