Why the Bear Will Lose Its Bite

Consumer Spending
No one ever made a dime underestimating the staying power of the American shopper. Despite the sluggish economy, personal income has been rising. Low interest rates have enabled consumers to borrow and spend without raising their monthly interest expense. And homeowners who are locking in the lowest fixed mortgage rates in two generations will be well insulated from rising rates as the economy recovers.

Business Spending
Tight-fisted corporate execs have been the biggest brake on growth for several years, but they appear to be relaxing their grip. Tony Raimondo, CEO of Behlen Manufacturing in Columbus, Neb., estimates that war jitters were costing his metal-fabricating firm $2 million a month in lost orders — about 20% of his anticipated business. Raimondo expects spending to pick up now, as it did after Gulf I. Orders last week were twice what they were a year ago. Says Sung Won Sohn, chief economist at Wells Fargo: "When I visit our customers throughout California, they all tell me they need to replace everything from ball bearings to electronics."

Stocks
The Dow surged 9% the week before the war — a visible sign of economic hope. But the rally stalled last week. With the war winding down, investors are focusing on economic fundamentals that show a mixed picture. With the bursting of the tech bubble fresh in mind, nobody expects the Dow to return to its January 2000 highs anytime soon. But it should hold recent gains and move slowly higher as consumers come back and earnings improve.

Jobs
Even optimists agree that hiring will not rebound strongly before 2004. In the first quarter, job searchers needed 4.2 months to find work, the longest average stretch since 1986. Without job creation, it's not really a recovery. On the plus side, the work force has been cut about as far as possible, and those with jobs are doing pretty well. Wages are growing 3.4% a year, thanks partly to productivity gains, estimated to be 2% this year. Jobs always return after a lag — and this time will be no exception.