The Economy is Turning Up, When Will the Market?

Chart of the Week for May 10-16, 2002

The initial first quarter productivity estimate shows productivity surged 8.6% as output expanded while the number of hours worked declined. The report sends a positive signal regarding the direction of future corporate profits. As is commonly the case during recoveries, businesses handle increased output requirements by working existing resources harder. The effect of the greater efficiency is to boost corporate profits and workers’ income without giving rise to inflation. The fact that such an upbeat report was essentially ignored by the market confirms Business Week’s recent observation that ". . . stocks and bonds appear to be priced based more on current worry than on current reality . . ." Sooner or later the market may catch-up to the economy.

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