Bill Cheney
Bill Cheney
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Hurricane Katrina undoubtedly devastated individuals and communities... but on a macro-economic basis it's clear that the US economy has more than enough momentum to absorb the hit and recover quickly.
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Regardless of what happens to energy prices and interest rates, homebuilding is going to happen and that's going to affect the national statistics but not by a huge amount ... it sort of disappears in the context of the national economy.
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Record or near-record trade deficits spark howls of concern about the threat posed to the economic expansion, but like inflation, the trade deficit's bark has been far worse than its bite. April's deficit, another near record, simply shows that we are still importing like there is no tomorrow.
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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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Looking forward, we have Katrina and the price of oil to worry about. I think the odds are still against it, but Hurricane Katrina could prove to be the exogenous shock that we've feared could dramatically slow or even derail the expansion.
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Looking ahead beyond the current gloom, there is a serious risk that we already have inflationary forces baked into the system. By late spring, the Fed could be cranking up interest rates even faster than they cut them.
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It fits in with the picture that the labor market is turned, inflation has turned and in a few more months they'll be tightening.
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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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While we're still skating on the edge of recession, I think the outlook for the economy is now quite encouraging. We may not feel great right now, but if a recession is a nasty case of the flu, the good news is that all we're suffering now is just a really bad cold.
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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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Most of the really alarming data has related to the manufacturing sector, which clearly is slumping. But since it only accounts for about 15 percent of total employment, it isn't dragging everything else down.