Analysis: Post-War Bounce Will Be Short-Lived

By John S. McClenahen As the fighting in Iraq winds down and nation-rebuilding begins, both the U.S. economy and U.S. stock markets are expected to show some growth. But, cautions David A. Rosenberg, chief North American economist at Merrill Lynch & Co., New York, the bounce will be short-lived. Rosenberg's reasoning: The economic fundamentals are not great. Surveys suggest that consumer spending, which accounts for about two-thirds of the U.S. economy, will soften. Businesses continue to shed workers -- and are cutting back on benefits and pay raises. And the cost of capital is running ahead of ROI in 70% of the S&P 500's industry groupings. "This doesn't mean no recovery, says Rosenberg, but it does mean that we think the [Federal Reserve's] 4%-ish second-half GDP growth assumption is more at risk of being a downside than upside surprise, leaving the door open for further [monetary] easings down the road." Chairman Alan Greenspan and his 11 colleagues on the Federal Open Market Committee, which sets U.S. monetary policy, are scheduled to meet next on May 6.

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