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Wednesday, March 05, 2003

Difficult to See the Wood from the Trees

It is hard to place any transcendental significance on the data as it comes in. With the Iraq showdown so close everybody has the jitters. Still these car and housing data are consistent with what the consumer confidence surveys are showing, a wearing down in the American consumer.

Weak sales figures from the carmakers and sober comments on the housing market from Alan Greenspan weighed heavily on the US stock market on Tuesday, fanning worries about the health of the economy in the exasperatingly uncertain geopolitical climate. By the close, the Dow Jones Industrial Average dropped 132.99 to 7,704.87 while the broader S&P 500 index had shed 12.82 to 821.99. The Nasdaq Composite was off 12.53 to 1,307.76.Stocks in car manufacturers fell after reports of lower sales figures for February. The auto and components sector suffered the heaviest losses in the S&P 500 index, down nearly 5 per cent by the close.
The worst performers in the subindex included component makers Visteon and Delphi, which lost 8.6 per cent to $5.73, and 8.3 per cent at $7.06, respectively. They were downgraded to "sell" from "hold" by analysts at Deutsche Bank. The Deutsche analysts also cut the ratings of General Motors and Ford to "sell". Those stocks were off 5.8 per cent to $31.24 and 4.2 per cent to $7.73, respectively, with GM leading losses on the Dow.Rod Lache and colleagues wrote: "We are increasingly concerned about the outlook for US demand. In fact, we believe that the risk of a prolonged downturn [lasting through 2005] is greater than is commonly perceived." They project US light vehicle sales will decline by 2005, and the annual pace of price deflation could get worse.

The resilience of auto sales, helped by aggressive incentive schemes, has been credited with helping to keep the US economy from slipping into a renewed recessionary spell. The incentive programmes have cut into the companies' margins and recent spikes in fuel prices have added to their worries. Homebuilder Lennar was down 7.2 per cent at $50.55, on disappointing figures for new home orders in its fiscal first quarter. Rival KB Home also fell, down 5.9 per cent at $44.35. The sector was not helped by Federal Reserve chairman Alan Greenspan, who told a bankers' conference that the growth of the housing market could slow this year. Alongside car purchases, the real estate market has fuelled the resilient consumer spending in the US economy.
Source: Financial Times

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