Wall Street Awaits Data on Employment, GDP

Stocks are in the grip of inflation fears now that the Federal Reserve has declared price escalation a real risk, so investors will give this week’s reams of economic data -- especially the March employment report -- extra scrutiny.

Wall Street’s mantra will be data, data and more data over the next five trading days, the final week of a losing first quarter so far for the major U.S. stock indexes.

On Wednesday, the U.S. government will release the final assessment of the 2004 fourth-quarter gross domestic product.

“You want to see economic news that is good but not too good,” said Alexander Paris, president of Barrington Research in Chicago. “On the economy, sometimes good is good, and sometimes good is bad. Right now, dull is good. They want to see the economy continue to grow but not too fast.”

“The market has been worried about inflation,” said Edgar Peters, chief investment officer of PanAgora Asset Management in Boston. The firm has about $15 billion under management.

“The Fed is saying they are concerned about [inflation] pressures that are starting to build, and they are saying if it continues, they would have to pick up the pace of rate hikes.”

Peters said he believed the selling prompted by the Fed’s comments Tuesday about inflation pressures picking up was overdone, positioning the stock market for at least a “technical bounce.”

Investors are becoming increasingly attuned to the economic reports in their search for clues about inflation. The obsession grew this week with the Federal Reserve’s comments Tuesday.

The Federal Open Market Committee said “pressures on inflation have picked up in recent months and pricing power is more evident” in its statement released with its decision to raise the Fed’s benchmark federal funds rate and the discount rate by a quarter of a point. The rate hike, which was expected, was the Fed’s seventh interest-rate increase since June.

The Fed committee’s acknowledgment of inflation pressures whipped stock indexes lower and drove the benchmark 10-year U.S. Treasury note’s yield up to its highest level since June 2004.

With this, the stock market tanked Tuesday, dropping the blue-chip Dow Jones industrial average and the broader Standard & Poor’s 500 to two-month closing lows and the tech-heavy Nasdaq composite index to its lowest close since Nov. 2, 2004.

That put the U.S. stock market further into the red for 2005. At the close Thursday, the last trading day in the holiday-shortened week, the Dow was down 3.2% for the year, the S&P; 500 was down 3.3% and Nasdaq was off 8.5%.

Stocks also finished the week lower, with the Dow down 1.8%, the S&P; 500 off 1.5% and Nasdaq off 0.8%.

Financial markets are fretting now over an increased possibility that the Fed will enact more aggressive interest rate increases, designed to forestall heated economic growth.

“People are getting worried about excessive strength,” Peters said. “If these numbers come in really strong, that would be taken badly. It is a reversal of the previous psychology” that feared economic weakness.

Economists polled by Reuters expect on average fourth-quarter GDP growth of 4%, up from 3.8% in the previous announcement. The report is due Wednesday.

As for the crucial March jobs report, nonfarm payrolls are expected to grow by 220,000 and the unemployment rate is seen coming in at 5.3%, down from the previous 5.4%.

From Reuters

The Week Ahead

Monday

* Walgreen Co. reports second-quarter earnings.

Tuesday

* Conference Board reports its monthly consumer confidence index.

Wednesday

* Commerce Department reports on gross domestic product, fourth quarter.

* Quarterly earnings to be released by Best Buy Co. and Circuit City Stores Inc.

Thursday

* Commerce Department reports on personal income and spending and on factory orders for February.

* Labor Department reports on weekly jobless claims.

* Freddie Mac, the mortgage company, reports on mortgage rates.

Friday

* Institute for Supply Management issues its report on activity in the manufacturing economy during March.

* Labor Department reports on employment for February.

* Commerce Department reports on construction spending for February.

* Jury selection for the trial of former executives of Enron’s defunct broadband unit.