Bill Cheney
Bill Cheney
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Weak employment growth but higher hourly earnings point Greenspan and the Fed in two different directions. Either the economy is slowing down and the Fed needs to sit tight, or inflation is starting to take off and another tap on the brakes may be necessary.
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With the U.S. slowdown looking more real each day, the trade deficit may have passed its peak. The slowdown hadn't hit full force yet in October. U.S. consumers are still sucking in massive amounts of imports. The slowdown will be more clearly seen in November and December's figures. If imported goods start to pile up on retailers' shelves this holiday season, imports could drop off fast.
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With the tide turning on job growth, consumer sentiment going into the holidays is far better than last year, even if it's not quite happy days are here again.
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The advance GDP report is a funny animal. It's a combination of data that's already out there combined with official guesses. There isn't a lot of real new news.
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What worries me the most is a slip backward becoming a spiral downward. Jobs are the linchpin of both consumer confidence and consumer spending. We can't sustain many more losses like this without that downward spiral getting started. This is the kind of data that could make the Fed think about easing again.
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Today's rate cut was no surprise. Even the half-point cut was more or less expected. In fact, the economy is still weak enough for the Fed to feel free to keep easing.
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Today's employment report is just one month's report, but it's the one we've been waiting for, providing unambiguous good news about the labor market.
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Given the absence of core inflation, it seems to me as good a time as any to pause and see what's happening for a few months rather than overshoot and risk a recession.
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I don't think it really suggests there is any inflation developing -- a 0.3 percent rise in wages is pretty manageable. But it's a pretty positive report; it suggests that the overall jobs market is pretty healthy.
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But that's still largely a hope, not a certainty.
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Businesses seem to be doing everything they can to increase profits without increasing hiring. Unfortunately for the labor market, they appear to be quite successful.
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Many businesses see statistics showing economic growth as a cruel joke. Competition is still brutal, wages are still rising, prices are still flat or falling, and profits are as hard to find as they were a year ago.
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Monetary policy is the perfect instrument for these circumstances. The Fed can keep pushing as needed, but still can turn on a dime and pull back as soon as spending starts to rebound.
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Now we're starting to see that wash out, and we're seeing that the labor market really has been gradually strengthening for most of the first half of this year. And this is fundamentally good news for consumers and for the health of the recovery going forward.