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Changes Imminent In Bush’s Economic Team

Economy still trying to pull out of a two-year slump; but housing starts shot up 13% and increase in insider stock purchases suggest improved company earnings and stock market upturn.

By Curtis J. Hoxter

October 31, 2002
Copyright © 2002 CARIBBEAN BUSINESS. All Rights Reserved.

The White House, the Congress, the Washington rumor mill and even Wall Street are chock-full of indications that soon after the November election, President George W. Bush will alter his economic-financial policy team. The way the rumors are spreading on from serious sources on a continuous basis, the chances that such moves may be in the offing, the situation is a fait accompli.

It is widely agreed there is no real meaningful stimulus emerging from the Administration, the Congress, American businesses and especially the financial community.

Key to changes is Treasury Secretary Paul H. O'Neill, who is criticized for too much purposeless candor and an erratic style. While speaking out freely and emphatically, the current Treasury Secretary has upset the White House much too often and has annoyed the Republican leadership in both Houses of Congress.

The most powerful man on the economic-financial front is the Head of the Office of Budget and management, Mitchell L. Daniels. He is recognized as a person who pleases his boss, but irritates Congressional leaders. Chances are that he will be replaced since he has aspirations to get actively involved in politics.

The "dud" on the economic-financial team is, as is frequently the case in all Washington administrations, the Secretary of Commerce. He was an original Bush intimate, but little has come forth from his Department, except complexities on the trade policy front, where he has been instrumental to advance protectionist, anti-free trade approaches.

The new faces are very much needed, but the move could be delayed since the President’s cronies, mostly in the business and finance leadership, could prevent a clean slate. Some international economic and financial questions can be expected to dominate the second half of the Bush Administration. The changes cannot be avoided, say Washington experts.

Meanwhile, two reports on the United States manufacturing sector described an industrial economy still trying to pull out of its two-year old slump. The Philadelphia Federal Reserve Bank revealed its Index of Mid-Atlantic Factory Output plunged in October, the second drop in the last three. It suggested the region’s factories may suffer an even deeper downturn in the next few months. "Firms expect little or no increase in production levels for the remainder of the year," the report noted. "Still, firms remain optimistic about growth over the next six months."

At the same time the Philadelphia Reserve noted output at factories, mines and utilities dipped by 0.1% in September after falling 0.3% in August, in part due to tropical storms that cut oil and gas work in the Gulf of Mexico. But that followed a 0.3% fall in August and marked the second straight drop.

Buoyed by rock-bottom interest rates, housing starts shot up 13% in September, from the month before to an annual rate of 1.84 million units. That was the highest level in sixteen years and snapped three months of drops. The ends were fueled by a surge in single-family home starts, which hit a 24-year high.

A positive early indicator of economic expectations is the pronounced rise in insider stock purchases, i.e., purchases made by company executives and directors buying their company’s stock in the same open market as everyone else and paying the going price for it. On report says the dollar value of insider purchases in August rose 67% over July. It was the second straight month of rising purchases after four straight months of declines. This sudden wave of purchases is a distinct sign that corporate officers and directors think their company’s stocks are undervalued and are about to move up. The trend is something to watch closely, as most people on Wall Street agree that when more companies start reporting improved earnings this could cause an upturn in the stock market, which could in turn bring a more positive tone to the economic recovery.

Curtis J. Hoxter is an economic analyst based in New York, N.Y.

This Caribbean Business article appears courtesy of Casiano Communications.
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