Ethan Harris
Ethan Harris
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This was the big match to get. You just want to get to (today), no matter what it takes.
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We think the ISM services number is one of the worst monthly pieces of data there are. On a month-to-month basis, it has no correlation with service sector employment, and on a quarter to quarter basis, it has no correlation with service sector gross domestic product.
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While the Fed is more than one person, Mr. Greenspan's retirement means less confidence in the Fed, with somewhat greater risk of both financial market instability and inflation.
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You are seeing a nice rebound from the hurricane-distorted fourth quarter, with strength broadly based across the economy.
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The reason the recovery was so feeble was you still had these hangover effects from the real estate and banking sectors, ... Real estate was still reeling from excess capacity and the whole thrift industry had been decimated by bad loans.
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Firms have cut back on their capital spending budgets to the point where some of them are not even replacing worn-out equipment. It's been quite a dramatic pullback, and in some sense there's some pent-up demand out there for capital equipment.
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But the obvious effect is on utility consumption, which will affect industrial output in the economy. People consume more electricity, that places more demand on natural gas, coal, power, and electrical systems.
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Now you are entering a much more uncertain period.
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It suggests moderate growth in the year ahead, but I don't think there's much risk of a 'double-dip' recession.
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It's true there's been a shift of income distribution, with a lot of income gains accruing to upper income individuals. The labor market is paying a bigger and bigger premium for being well educated, ... At the other end of the distribution, if you look at Joe Six-Pack, you've seen a big decline in big paying, low skill jobs in manufacturing.
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The number itself wasn't very surprising, ... (Federal Reserve Chairman Alan) Greenspan's comments last week that the trade gap might start getting smaller raised attention and some hopes. But I didn't agree with him about that.
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It's the toughest weight class in the state, by far. Everyone here is so tough. There are just some studs in this weight class, so it's going to be the best man who comes through with the title.
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Even with this dip, the unemployment rate is still about a percentage point above the level where it might threaten inflation. That means there's plenty of wiggle room for the Fed on policy. They're going to be patient and not change the wording of their statement next week.
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Even with a resolution to the situation in Iraq, the economy will still be suffering from some fairly significant headwinds.