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Mixed Signals on US Economic Outlook - 2003-03-15


There were mixed reports this week on the health of the U.S. economy. Markets Friday were whipsawed by reports showing a big drop in consumer sentiment, a modest rise in industrial output and the sharpest drop in oil prices in five weeks.

U.S. equity markets initially mounted a powerful rally, building on the sharp rise of the day earlier. However by mid-afternoon most of the gains had been erased with investors still uncertain about whether there would be peace or war in Iraq.

In Europe, where the markets close five hours earlier than in New York, there were significant rallies in Paris, Zurich, Amsterdam and London, with most of those markets closing five to seven percent higher. Analysts say they were cheered by President Bush's morning remarks on the Palestinian-Israeli dispute as well as news of a Sunday summit between the leaders of the U.S., Britain, and Spain on Iraq.

Oil prices in London and New York closed sharply lower with crude down nearly $2 to about $34 a barrel. Oil, which has risen sharply in recent months registered its biggest weekly decline since last April. The price weakened on reports that Saudi Arabia has chartered extra tankers to take additional Saudi output to U.S. ports.

The U.S. economic data was mixed with consumer sentiment as measured by a University of Michigan survey, down for the third straight month to its lowest level since 1992.

"The fact is this soft spot in the economy is bigger. Income gains are slowing, housing prices are no longer rising as fast," said William Wilson, chief economist at Ernst and Young in Chicago, on CNBC television. "There are signs that the housing market is cooling off in a number of areas. And I think most importantly the labor markets are beginning to deteriorate once again."

In February the U.S. economy lost 308,000 jobs.

On the positive side, industrial output was up slightly in February. American manufacturers may be beginning to see the benefits of the gradual, year-long, weakening dollar which makes it easier to compete on export markets.

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