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For the first part of the week market prognosticators were absorbed with the question of whether or not the Fed would remove the words “for a considerable period” from their comments indicating how long they might sustain short-term interest rates at these historic levels.  They did not.  Market watchers for the last part of the week have been focused on whether or not the Dow Jones Industrial Index would reach 10,000.   It did.

This week we saw improvement on the government policy front.  Yesterday, President Bush announced an end to the steel tariffs that have caused such noise from Europe andChina, as he announced that they had served their purpose.  Generally any government policy that restricts free trade is bad, but when concerted foreign competitive practices cause whole-industry disruption in a target country and the jobs it provides, action may be warranted.  But the questions are always complicated and heavily influenced by bias.

The market continues its sideways movement as the numbers from business and government continue adding to the case that the recovery is real and sustainable.  But everyone, from individual investors to institutional giants, from small businesses to mega-corporations, from the Federal Reserve to the Administration, remains cautious on the future of this economy.

The economy grew 7.2% from July through September.  That’s the fastest growth rate since 1984 and more than twice that of the second quarter.  For the first time in history, the economy exceeded $11 trillion, before adjustments for inflation, according to Bloomberg.  Consumers spent at the fastest pace in six years and businesses showed strong increases in fixed investments.  Numerous retailing managers have said their businesses improved noticeably after President Bush signed the tax-cut bill into law in July.  Non-retailers are also joining the recovery.  Profits of 375 members of the S&P 500 companies are up an average 22%. 

The Dow Jones index has given up about 1.7% so far this week, while the S&P 500 has declined a little over 1%.  The technology concentrated NASDAQ is down 2%.  The declines are most likely the result of investors’ disappointment with the earnings reports that have been pouring from Wall Street this week. 

Last night, EBay reported a 69% increase in earnings for the fourth quarter and a 55% in the number of active users.  But it was their more conservative year-ahead guidance that sent the stock and the market lower in trading this morning.  The company suggested that 2004 earnings would likely come in around 98 cents a share, less than the $1.05 analysts’ profit estimate of analysts surveyed by Thompson Financial.  Money manager Paul Cook of Munder Capital suggested that Ebay “may make more investments than expected in growth opportunities, or may be leaving room to exceed the guidance.”

A perfect “10” this recovery is not.  On this tenth day of the tenth month business leaders, investors, and economists remain confused by the indicators of this economic recovery.  While the government reports are released like clockwork, the information they contain is not quite so predictable.  Yes, the overall economic trend remains positive and new data increasingly confirm the trend’s direction, but outliers and contradictions continue to confuse expectations.  Fortunately, we are at the early stages of the third quarter earnings cycle.  In the coming weeks we will gain a better understanding of the health of American business and their managers’ expectations for the future.   

Not too long ago I listened to an Australian gentleman who was interviewed on a radio talk show.  When asked about his experiences inAmerica, he seemed very impressed with our culture, infrastructure, opportunities, etc.  But he concluded his complimentary remarks with a rather telling observation that “no one in this country indicates.”  That’s Australian-speak for ‘uses one’s turn signal.’

All of this week’s economic data has been released in the last two days.  That conveniently coincided with my return yesterday after spending a few days on my annual trip to the impoverished and twice recently flooded coalfields of West Virginia.  In light of our recent discussions ofAmerica’s waning manufacturing presence, I was struck by the awesome cost of inflexibility in a rapidly changing world.