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. 

This week’s Brief will be just that due to Hurricane Isabel’s eminent arrival.  With the likelihood that we might not have power or Internet connections tomorrow, we wanted to get it out today before conditions degrade, as they are doing pretty quickly. 

The S&P gave up a half a percentage point this week while the NASDAQ declined by .64%.  The economic news was mixed and gave little boost to the market in either direction.  Retail stocks led the decline as some investors and analysts fretted that the increase in mortgage rates would slow refinancing, thereby reducing a major source of consumer funds.  Another factor weighing on the market was the release of yet another bin Laden tape on the eve of the 9/11 anniversary. 

The S&P is up 2% and the NASDAQ is up 3.2% for the week.  Progress continues on the economic front as signs mount that the recovery is fully underway.  The short week following Labor Day started on a high note with ISM Manufacturing rising to 54.7, its highest reading since December.  It was also the second month above 50 signaling thatU.S.manufacturing is growing after four months of contraction.  The Institute’s production index rose to 61.6, the highest in four years.  Inventories are lean so factories must step up production to meet rising demand.  But so far, the increase in factory output has not increased hiring as productivity continues to rise faster than the economy.

Stock investors earnestly began to believe that the U.S. economy was in recovery on March 12th.  Microsoft and Intel were among the volume leaders that day as major headlines read “U.S. stock indexes have biggest gains in five months.”  Sparking the rally were comments from the administration indicating that it would extend diplomatic efforts to disarmIraq, effectively delaying the war.  In the following days many analysts characterized the good market action as a short-term reaction to news war delay, but time has shown know that investors were looking at the larger picture and anticipating economic recovery beyond the war.  

Yesterday, the Labor Department reported that productivity grew more than twice as fast in the second quarter than in the previous three months as the economy accelerated.  The increase of 5.7% was considerably over analysts’ estimates of 4.1% and the fastest since the third quarter of last year. 

As we begin the 34th day of this hot, hot summer, corporate earnings and government reports are heating up as well.  In the prior couple of months stock prices have run up in anticipation of both, defying the normal seasonal pattern of sluggish equity returns. 

The earnings reporting season is in full swing now with a quarter of S&P 500 companies reporting this week.  The results were quite good on balance as numerous companies soundly beat analysts’ estimates.  Those companies beating analysts’ estimates span a broad range of industries.  They include Caterpillar, SanDisk, Boise Cascade, Georgia-Pacific, Bank of America, Merrill Lynch, USA Truck, Marriott Int’l, Coca Cola, Ford, Johnson & Johnson, Stryker, New YorkTimes, and BB&T.  The list of companies surprising negatively is much shorter.  But it includes some notables like Kraft Foods, Fannie Mae, FleetBoston, Hershey Foods, Sears, and Microsoft.