Gary Thayer
Gary Thayer
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It's still a good reading overall, but not quite as robust as we've seen in the last several months. The encouraging thing is that the employment component increased again. We are beginning to see businesses becoming a little more willing to hire.
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We did see a big recovery in (producer) prices, but that was primarily in energy. Core prices increased only modestly and that's good news for the Fed.
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It's a good number for the economy. Labor markets are improving, and that increases the likelihood that the economy will remain strong.
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This may help increase the inflation-fighting credibility of the Fed before we replace the chairman.
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The October home sales data were strong, but we are seeing more moderate price increases for new homes suggesting that the housing market is gradually cooling off.
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If you put the two months together it still looks as if retail sales were strong at the beginning of the year -- an average increase of 0.8 percent for each of the two months.
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The increases (in gas prices) looks like it's hitting a critical level.
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Inflation is creeping up, but it's not out of hand. I think that's pretty important. The bond market may have discounted a worst-case scenario over the last couple of months on inflation, and now maybe traders won't have to worry about the Fed moving too fast.
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It's sort of a good news-bad news situation though, because if it gets out of hand, it can create other problems for the economy.
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The big number is the employment number on Friday. If that number comes in weak for the third consecutive month, views on the Fed are likely to change significantly.
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The bond market liked the inflation data. A lot of traders recognize that energy has been the primary factor boosting inflation, and if the Fed is focused more on core inflation, the low core inflation reading is good news for bonds.
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The bond market had been thinking that the weak economic numbers that we've seen would cause the Fed to think twice about raising rates,
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These numbers show the economy is indeed in recession, and they leave the door open for the Fed to cut rates again.
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These numbers look as if there's no urgent need to raise interest rates much further.