Before getting to the economics and financial happenings of the week I wanted to share a story with you. In the wake of Memorial Day and the dedication of the WWII Memorial it is timely in that it honors some of the unsung heroes of World War II. About a month ago my mother received a letter from a serviceman she met in Fayetteville, NC some 62 years earlier. He and his wife were traveling back to their Chicago home after spending the winter in Florida. He wanted to stop by to catch up and especially to say thanks for her contributions during a difficult time in his life and in the lives of so many servicemen.

Yesterday, the Commerce Department revised upward its estimate of how fast the economy grew in the first quarter of this year by two tenths of a percent.  The report also showed that corporate profits jumped 31.6% in the quarter ended March, the biggest increase since the first quarter of 1984. 

Peter Ustinov said “Beliefs are what divide people.  Doubt unites them.”  There are numerous periods in history to support the statement.  Most notably, the World Wars brought global division that united one side against the other.  Internal disagreements were put on hold.  Unity ruled until the ‘doubt’ of the future was replaced by victory. 

Maybe it’s impossible to fully prepare oneself for the prospect of leaving NeverLand.  We get comfortable with things as they are and are easily shaken when facing the possibility they may soon change.  We have known for months that interest rates couldn’t stay at forty-year lows and that tax breaks and incentives wouldn’t remain the rule.  But with all the waling and gnashing of teeth on Wall Street during the past few weeks, we see proof of Benjamin Graham’s observation that the market is a “voting machine” in the short run, driven by the sum of individuals voting their emotions of fear or greed.  Only during longer spans of time does it settle into its more dignified analytical reputation as a “weighing machine” of the facts.   

The country’s gross domestic product grew at 4.2% in the first quarter of this year led by consumer spending and business investment in office equipment and software.  The report also showed that inflation rose the most since mid-2001. The number of Americans filing for unemployment insurance for the first time fell to a three-year low while employment costs rose, pushed by the largest jump in benefit costs in twenty years.

J. R. R. Tolkein reminds us that patience is integral to any great undertaking and accomplishment.  For the past year, we have watched almost every notable statistic available to determine the current and likely future health of this economy.  Most have been mixed to mildly positive with just enough question marks to keep overconfidence in check.  The past twelve months are remarkable in their stark contrast to the mood and assumptions of the late nineties, when virtually everything was rosy beyond historical precedent.  

Corporate earnings for the first quarter of 2004 released to date suggest a favorable trend is developing.  As of today, 242 companies of the Dow Jones US Total Market Index have reported and are up and average of 28%.  This total represents less than 15% of 1,632 stocks in the index, but if the trend continues, first quarter 2004 results will compare well with the 24% average gain of S&P 500 fourth quarter 2003 earnings. 

The U.S. economy added 308,000 jobs in March, almost three times economists’ expectations and the largest gain since April 2000.  Treasury Secretary John Snow said “strength is apparent across the board, including strong job growth in construction, retail, and business services.”  The increase follows gains that were revised upward to 46,000 for February and 159,000 for January.  Manufacturing may soon be joining the party as this was the first month without a decline since August 2000.  The Unemployment rate rose to 5.7% from 5.6% as more people returned to the labor force to seek jobs. 

If the majority of Americans feel uneasy about their employment status as the media and certain politicians claim, they don’t show it when it comes to buying homes and taking on larger mortgages.  New home sales for February surprised to the upside while mortgage applications were down only .2% from historic highs.  Both Fannie Mae and Freddie Mac, the nation’s two largest purchasers of mortgages, are forecasting another record year for home sales amid low interest rates.  The 30-year fixed mortgage is within a half a percent of the all-time low.

Offices and worksites are abuzz with NCAA college basketball talk as the tournament got off to a great start this week.  The event is characterized as “March Madness” or “March Mania” because of all the hoopla (no pun intended) and energy of 64 college and university fanatics converging on 14 American cities over the next three weeks.  Good luck if you have a pony in this race.