May 18, 2009

Economic Outlook: Recovery Hesitates

April's retail figures, down 0.4 percent compared to March, derailed a two-month rally in U.S. stock markets last week.

The Dow Jones industrial average plunged 184.22 points Wednesday -- down 2.18 percent -- and failed to gain traction for the rest of the week, gaining 46 points Thursday and losing 62 Friday.

It seems an odd recovery with unemployment expected to rise through the end of the year and major U.S. automakers Chrysler LLC and General Motors Corp. shuttering about a third of their dealerships last week. Chrysler is already in bankruptcy and analysts concluded GM would be forced to follow suit with courts protecting the company from an expensive whiplash from the 1,100 dealerships it said it would no longer support after October 2010.

Welcome to recovery from the recession. After two months of stock market gains, investors are wondering what was real ? Was there anything substantial supporting gains, or will the larger picture reveal markets taking one step forward before sliding two steps back?

Many point to housing first. It was housing that dragged the economy down. Housing -- historically the equity plan of choice most Americans -- needs to recover to bring the economy back, analysts say.

Economists predicted slight gains in the National Association of Home Builders' housing market index expected Monday. On Tuesday, the Commerce Department releases the more closely-watched data on housing starts, which are expected to have increased slightly to an annual rate of 520,000 starts, better than a month ago but far worse than a year ago.

After that, investors will look closely at what banks have to say. The Bank of England and the Federal Reserve Bank release meeting minutes Thursday -- notes generally scrutinized for hints on which way interest rates will go. But both banks are likely leaving interest rates alone, as they are at historic lows for both institutions.

U.S. Treasury Secretary Timothy Geithner was to speak Monday at a Newsweek magazine event. Federal Reserve Chairman Ben Bernanke speaks Friday at the Boston College of Law graduation ceremony.

Asian markets were mixed Monday with the Nikkei average in Japan down 2.44 percent. The Hang Seng in Hong Kong was up 1.38 percent. The Singapore Straits Times climbed 1.74 percent, while the S&P/ASK in Australia dropped 1 percent.

Markets were also split in midday trading in Europe. The DJStoxx 600 was up 0.47 percent. The FTSE in Britain was up 0.69 percent. But the DAX 30 in Germany fell slightly, off 0.06, while the CAC 40 in France was off 0.11 percent.