Gary Thayer
Gary Thayer
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The good news is that what we've seen is an unchanged reading for the nonpetroleum items and it looks like what we're still seeing is lower prices for many consumer items.
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We still have a very weak world economy, despite the fact that the U.S. economy is still doing pretty good, ... We're seeing lower prices basically because there is more production out there than demand.
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Companies may be paying more for raw materials and energy, but that is at least partially being offset by lower unit labor costs. That, I think, is likely to keep inflation contained.
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The Fed will probably hold rates steady at a low level as long as they can. And I think as long as the unemployment rate is rising, they'll maintain a policy bias toward weakness.
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It shows that consumers are feeling poorly about the economy, similar to what we've see in other recessions. Confidence is not as low as it was in the recessions of the early 1990s and early 1980s, but it is dropping in response to the worsening employment situation and the concern about the terrorism threat.
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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 upturn in confidence is an encouraging sign that economic conditions are stabilizing after the hurricanes. Lower energy prices are helping, but the upturn in employment is also a plus.
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The employment component was just a tad lower than what we saw in November so it's still a healthy number.
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The Philadelphia Fed business outlook index is still above zero in January, pointing to expansion, but the expansion is not quite as broad.
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The PPI numbers generally have been running higher than the CPI numbers, showing that the higher production costs are not being passed on.
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This supports the view that first-quarter economic activity is much better than what we saw in the fourth quarter of last year.
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This suggests the government saw more real growth and less inflation in the quarter.
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This report leaves the door open for a rate cut. There's still uncertainty out there, and as a way to sort of offset the uncertainty, the Fed will do more than it may need to do.
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We think the economy is poised to slow down and that's good news for the Federal Reserve.