Ethan Harris
Ethan Harris
applying believe labor number people sure
I'm not sure I believe the Labor Department. On Friday, there must have been a below-normal number of people applying for benefits.
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The labor market's going to have a long, slow climb. Corporate America is going to use whatever means it can to boost output without hiring. They're going to wait and wait for confirmation that growth is really picking up before they move into serious job hiring.
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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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Ultimately, for the economic recovery to sustain itself, we have to see the labor market improve. As the tax-cut benefits fade, consumers will look for more fundamental reasons to spend money, and there will have to be some job growth.
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We've been trying to see whether the improvement of the economy and financial market will carry the day in terms of consumer confidence, or if worries about labor will dominate. It looks like the 'glass-half-full' view is winning.
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In an ideal world, three simultaneous gradual adjustments would happen. The U.S. eliminates the budget deficit, China revalues by 30 percent and China works to rebalance growth more to consumption and less to exports. Of course none of this will happen and the pressure for protectionism from Congress grows.
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It's not as friendly as some of the other inflation numbers, but it's just one indicator. We have no inflation warning signals from any of the other major inflation indicators.
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It's not a question of a sudden explosion in prices. It's more an erosion of the low-inflation psychology.
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Everyone is all zeroed in on the consumer now, but the truth is that the consumer isn't the driver now. Confidence is picking up, but still at average levels. Wage growth is slow and the bulk of the tax cut is already in place. Finally, with all the debt people have taken out over the past several years the burden of paying monthly bills is leaving less for discretionary spending.
bond looking market relief report
The bond market went into this report looking for disaster. I think there's a sense of relief in the bond market.
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The best tack is to move by a quarter point, with the promise that there will be more cuts to come if the economy remains weak. You can't maintain that promise with big bulky rate cuts.
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The basic story of the consumer is that he's OK in the near term and at risk in the medium term.
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The adjustment to higher prices has been fairly orderly. It's not a 70's style shock. Oil prices do have an effect on the economy but it's not dramatic. It's a problem but not at the top of the list.
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They keep fiddling with the language, and the general tone of the directive keeps getting a little less dovish. Being 'patient' sounds a little less like they're keeping rates on hold than a 'considerable period' -- though you'd need to study a dictionary closely to figure that out.