Vegas
10-08-2007, 03:35 PM
http://ibdeditorials.com/IBDArticles.aspx?id=276476743231305
Employment: The strong job numbers for September go a long way in allaying fears of recession, including our own. They show an economy that remains surprisingly healthy — no matter what the gloom birds say.
Employment data for August, when first reported, were worrisome: Instead of an expected gain of 110,000 jobs, 4,000 were lost — the first decline in four years. That, many believed, signaled dramatically slower growth or even a recession. We were among those disappointed.
Today, we'd slap a different headline on the story: "Never Mind." Not only did payrolls in September increase by a larger-than-expected 110,000 positions, but August's decline of 4,000 was revised to a gain of 89,000. (June and July were also revised up).
http://ibdeditorials.com/images/editimg/issues100807.gif
We've now had 49 straight months of employment growth, with 8.4 million new jobs added — 1.6 million in the last year alone.
So much for a recession. And so much for Democrats' hopes of using a downturn to hammer the Republicans during next year's election. For now, it seems, a recession's not in the cards.
Which raises a timely question: Did the Fed jump the gun on Sept. 17, when it slashed the fed funds rate a full half-point? The answer, we think, is no.
Fed chief Ben Bernanke unfairly suffers from a reputation as an unenthusiastic inflation fighter. That's largely due to a bond market that dubbed him "Helicopter Ben" in 2002, after he hinted the Fed could end deflation by dropping dollars from a helicopter.
Bond folks have never forgotten that remark. Last month's rate cut, coming as it did just a month after the Fed seemed more worried about inflation than growth, sealed his reputation. But Bernanke did the right thing.
True, as the job report shows, the overall economy remains surprisingly resilient. Even so, we're not seing overwhelming signs of strength anywhere right now, except perhaps in the stock market.
Those who fear "Helicopter Ben" should look at the last two months' data for the core PCE deflator, the Fed's main inflation gauge. It's fallen below 2%, the Fed's target. No big problem there.
But we do have a major housing recession. The "nonresidential fixed investment" part of GDP — essentially the housing sector — has plunged 14.4% since the start of the year. That's due, by the way, to 17 Fed interest-rate hikes from June 2004 to June 2006.
We also have problems in our financial markets. Due to subprime lending woes, banks had stopped lending, even to one another. They feared their massive portfolios of asset-backed loans were infected by the subprime virus. They couldn't trust the collateral.
With one bold 50-basis-point move, the Fed helped bolster the impaired collateral on those balance sheets, while adding liquidity to a strained credit system. That's a key point here: Apart from housing, the Fed really wasn't much worried about the economy at all; it was more worried about the health of the financial system.
Today, we have job growth of a bit more than 1% a year. Productivity is also rising about 1% a year (though, long-term, productivity is likely growing faster than that). Still, that yields an underlying GDP growth trend of a solid but unspectacular 2%, maybe higher.
The Fed's last cut will help keep that going. Another one may lift it higher. The Open Market Committee meets again just before Halloween. Let's hope another treat is in the offing.
Employment: The strong job numbers for September go a long way in allaying fears of recession, including our own. They show an economy that remains surprisingly healthy — no matter what the gloom birds say.
Employment data for August, when first reported, were worrisome: Instead of an expected gain of 110,000 jobs, 4,000 were lost — the first decline in four years. That, many believed, signaled dramatically slower growth or even a recession. We were among those disappointed.
Today, we'd slap a different headline on the story: "Never Mind." Not only did payrolls in September increase by a larger-than-expected 110,000 positions, but August's decline of 4,000 was revised to a gain of 89,000. (June and July were also revised up).
http://ibdeditorials.com/images/editimg/issues100807.gif
We've now had 49 straight months of employment growth, with 8.4 million new jobs added — 1.6 million in the last year alone.
So much for a recession. And so much for Democrats' hopes of using a downturn to hammer the Republicans during next year's election. For now, it seems, a recession's not in the cards.
Which raises a timely question: Did the Fed jump the gun on Sept. 17, when it slashed the fed funds rate a full half-point? The answer, we think, is no.
Fed chief Ben Bernanke unfairly suffers from a reputation as an unenthusiastic inflation fighter. That's largely due to a bond market that dubbed him "Helicopter Ben" in 2002, after he hinted the Fed could end deflation by dropping dollars from a helicopter.
Bond folks have never forgotten that remark. Last month's rate cut, coming as it did just a month after the Fed seemed more worried about inflation than growth, sealed his reputation. But Bernanke did the right thing.
True, as the job report shows, the overall economy remains surprisingly resilient. Even so, we're not seing overwhelming signs of strength anywhere right now, except perhaps in the stock market.
Those who fear "Helicopter Ben" should look at the last two months' data for the core PCE deflator, the Fed's main inflation gauge. It's fallen below 2%, the Fed's target. No big problem there.
But we do have a major housing recession. The "nonresidential fixed investment" part of GDP — essentially the housing sector — has plunged 14.4% since the start of the year. That's due, by the way, to 17 Fed interest-rate hikes from June 2004 to June 2006.
We also have problems in our financial markets. Due to subprime lending woes, banks had stopped lending, even to one another. They feared their massive portfolios of asset-backed loans were infected by the subprime virus. They couldn't trust the collateral.
With one bold 50-basis-point move, the Fed helped bolster the impaired collateral on those balance sheets, while adding liquidity to a strained credit system. That's a key point here: Apart from housing, the Fed really wasn't much worried about the economy at all; it was more worried about the health of the financial system.
Today, we have job growth of a bit more than 1% a year. Productivity is also rising about 1% a year (though, long-term, productivity is likely growing faster than that). Still, that yields an underlying GDP growth trend of a solid but unspectacular 2%, maybe higher.
The Fed's last cut will help keep that going. Another one may lift it higher. The Open Market Committee meets again just before Halloween. Let's hope another treat is in the offing.