Anthony Chan
Anthony Chan
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The recovery of 2002 looks poised to mirror the recovery of a decade ago, with a moderate economic and earnings recovery following a short and shallow recession.
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When one looks at the MBA data that reveal that applications for the purchases of new homes are down 7.5 percent on a year-over-year basis, it is not hard to see that the gain reported this month is not a sustainable trend.
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It now looks as though the economy is continuing to gravitate towards a more gradual pace of economic growth.
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I think the Fed certainly looks at this as building up as pricing power on the part of companies, ... But (the price index) is still within the tolerable range for the Fed. That's not to say the Fed can relax and go on vacation, but I would say they're a relatively benign.
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The core (inflation measure), while it's up, still looks very contained. This just keeps the Federal Reserve interest rate hike engine humming along after June 30.
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The unemployment number is the one Main Street looks at. This buys the Fed a little more time and allows it to hold true to its word that, until geopolitical risk lifted, no stimulus should be added to economy.
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What the Fed showed was that extraordinary circumstances require an extraordinary strategy. Not only are they moving rates to lows not seen since the early '60s, they're prepared to move them a lot lower.
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We will see more bad news on the employment front. We see unemployment going to 6.1 percent or 6.2 percent before it's over; no way are we going to see that coming down while we're creating so few jobs.
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These claims numbers confirm the notion that things may improve sometime in the future. The fact that we didn't go over 400,000 was very encouraging.
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These results suggest that the current low energy prices should serve as an important and positive boost to overall economic growth.
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The stock market didn't want the economy to grow too quickly because they were worried about aggressive rate hikes, ... They wanted the Goldilocks approach where everything was just right. But now they realize that maybe the porridge is a bit too cold for their taste.
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The small improvement in labor market conditions, despite the continued risks that remain on this front, do suggest that even with all the caveats that Greenspan echoed in his latest testimony ... the Fed might be inclined to move towards a neutral risk bias.
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The significant number of headwinds such as rising energy prices and the prospects of rising short-term rates are taking their toll on the economy,
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I still don't think they'll lower rates, but this tells me they're prepared to lower them at the first sign of trouble.