Inflation answers could affect market’s week

/ Source: The Associated Press

Is inflation a problem, or isn’t it? That’s the question that’s plagued investors so far this year, and a few answers could be coming this week.

The week will feature key reports on the economy, including the Institute for Supply Management’s manufacturing and services indexes, and the Labor Department’s monthly job creation report. These reports are all for February, giving investors a glimpse into the most recent trends in the economy and, ideally, assuaging fears about inflation that made for a volatile February on Wall Street.

Strength in the manufacturing and service sectors could mean consumers and businesses alike are willing to spend more. That, along with stronger job growth, will make the Federal Reserve’s policy of raising interest rates easier for corporate America to manage.

With first-quarter earnings more than six weeks away, reports like these will determine whether the stock market can once again surpass December’s highs and hold on to the gains — or whether inflation fears will continue to keep stocks from making meaningful gains in the short term.

Last week, weakness in the dollar and a sharp rise in oil prices above $50 per barrel caused a 174-point tumble in the Dow Jones industrial average on Tuesday, but strong economic data helped push the indexes higher over the week’s final three sessions. For the week, the Dow rose 0.52 percent, the Standard & Poor’s 500 index was up 0.84 percent and the Nasdaq composite index climbed 0.33 percent. Friday’s session marked the best 2005 close for both the Dow and S&P.

On tap: Manufacturing index, Labor payroll
On Tuesday, the ISM manufacturing index for February will give investors a read on the health of American industry. The index is expected to rise to 57 from 56.4 in January. ISM’s non-manufacturing index, which covers the service sector, is due Thursday. Wall Street is expecting a reading of 60 for February, compared with 59.2 in January.

On Friday, the Labor Department issues its non-farm payroll report. Economists expect the economy to have created 225,000 jobs in February, which would be a marked improvement from the 146,000 created in January. While job figures since November have come in below economists’ expectations, investors have seen the mediocre job growth as a sign that the economy is still growing, but at levels unlikely to trigger inflation.

Earnings: BJ's, Costco, Marsh & McClennan
Relatively few companies are scheduled to report earnings in the week ahead, but a pair of discount retailers could provide insight into consumers’ spending habits. On Tuesday, BJ’s Wholesale Club Inc. is expected to report earnings of 72 cents per share, up from 70 cents a year ago. BJ’s stock has climbed relatively steadily over the past year, rising 46.9 percent from $20.29 on May 14 to close Friday at $29.80.

Rival Costco Wholesale Corp. has seen a similar growth curve, rising 31 percent from its lowest 2004 close of $35.54 on May 17 to $46.57 as of Friday. Costco, which reports its earnings Thursday, is expected to post profits of 55 cents per share, compared with 48 cents per share in the year-ago quarter.

Embattled insurer Marsh & McClennan Co. is scheduled to announce its quarterly results Tuesday morning, with analysts expecting profits of 23 cents per share, compared with 70 cents a year ago. The discrepancy is due in part to the $850 million the company agreed to pay to settle charges, brought by New York’s attorney general, that claim the company defrauded its customers by engaging in questionable business practices. Shares of Marsh & McLennan tumbled hard in October in the wake of the investigation into the company’s dealings. The company’s stock has fallen 31.4 percent from $46.13 on Oct. 13 to close Friday at $31.63.

Car makers report Tuesday
On Tuesday, the nation’s automakers report their monthly sales for February, which can sometimes cause volatility in auto shares. And on Thursday, the nation’s biggest retailers release their sales figures for the month.

Federal Reserve Chairman Alan Greenspan is scheduled to testify Wednesday before the House Budget Committee, and is expected to discuss the current economic outlook. Investors will watch closely for any word on inflation.