Stock Market Flails, Refinancing Rate Fails, Oil Sails, Greenspan Wails

The stock market had a modest down day today on concerns about the looming signs of economic slowdown. Among other factors that caused the stock market to grovel around in the doldrums was the release of the monthly employee confidence index by the Hudson Highland Group, which found that the index fell to 102.0 from last month's 106.2, hitting its lowest level in a year. The sagging confidence among workers means that households are likely to become more defensive in their purchases, avoiding big-ticket items and other expenditures that would involve debt. Such a pull-back in spending will adversely affect the businesses that manufacture and sell such items, and this will lead to slower growth in the number of jobs and possibly even cause layoffs as the businesses brace for bad times ahead. Any movement by companies in the direction of lower employment levels will confirm for employees their waning confidence, leading to further pull-backs in purchases, causing more layoffs.

More bad news for stocks came as light, sweet crude oil hit $53 per barrel, worrying investors about the impact of higher gasoline and home heating oil on consumers' disposable income net of energy costs.

Dark Wraith CyberGloss

Crude oil is priced in terms of its quality coming out of the ground. A "light, sweet" crude is high grade, while a "heavy, sour" crude is low grade.

 With the price of gasoline now approaching the high-water marks it hit last year, the impact could go well past higher prices at the pump, since oil prices are reflected in energy costs paid by manufacturers, too, which will adversely affect bottom-line profits, especially of companies that are energy intensive or transport oriented, including most firms in the manufacturing sector.

Further evidence of the effect of rising interest rates throughout the economy was reported Wednesday by the Mortgage Bankers Association, which said that refinancing applications in the week ending February 25 fell another 2.4 percent, after a drop of more than half-a-percent the week before.

Dark Wraith CyberGloss

In interest rate terminology, one basis point is one one-hundredth of a percent. Hence, one full percent is one hundred basis points.

Homeowners' loss of appetite for refinancings has repercussions on the banking system, which earns revenues by originating these loans. The benchmark 30-year fixed rate mortgage for the period rose seven basis points to reach almost five and three-quarters percent and showed no signs of slowing its march into territory that will ultimately stifle both the new and exisiting homes markets, possibly bringing about the much-anticipated burst of the housing market bubble that has concerned economists for some months now. Because the residential homes market is such a large part of the overall consumer component of the economy, a sudden skid in prices caused by lower demand for homes would send shockwaves throughout the economy.

In other news, Federal Reserve Board Chairman Alan Greenspan warned that the large and continuing budget deficits are a "problem" for sustained and robust growth of the U.S. economy. Although Chairman Greenspan did not and likely would not lay blame upon any one person or group, many outside observers cannot help but point out the hole of federal budget deficits has been dug by a Republican White House and both Houses of Congress squarely under the control of the same political party, a party which has for years posed as the bastion of fiscal responsibility in a political system where the opposition party was accused of being fiscally irresponsible. As well as failing to note that it is the Republicans in general and the Bush Administration in particular that are at fault for the string of record federal budget deficits, Mr. Greenspan did not contrast George W. Bush's budgeting skills to those of former President Bill Clinton, whose Administration ran federal budget surpluses in its final years

Although the Federal Reserve Board in general, and the Chairman of the Fed in particular, want to give the appearance of non-partisanship in analysis and recommendations, some outside observers cannot help but wonder at what point an Administration that fails on objective grounds should no longer be spared open and harsh criticism by officials whose responsibility lies with the nation and not with the incompetent President.