John Silvia
John Silvia
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The recent decline in crude oil prices took out a little bit of the peak in energy cycle. But the fundamental underlying price is higher than it was a year or six months ago.
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Employment and wages are stronger and therefore, consumer spending is stronger. Housing is slowing, but not as much as we would have expected, and the price of oil is so far not having that big an impact on the consumer.
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But I don't think a prudent business or household manager can dismiss these energy prices today. We'll have to see what impact this all has on spending, employment plans and the rest.
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If you're going to set a price below market price, you're going to have to have some sort of rationing. I don't care if it's gasoline, prescription drugs or rent control in New York City.
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Job gains were clearly below expectations and trend. There may be some bounce back next month in specific sectors. Slower job gains may also reflect the impact of higher oil prices and uncertainty in the spring.
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Growth looks solid. The problem is prices paid were up again, suggesting inflation pressures remain a concern.
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I think if you had $70 oil, and the Fed were to continue to raise interest rates to fight inflation, that could cause a problem, ... I think there's a certain breaking point where that the price of energy alone is so high that it changes the psychology of both businesses and consumers. I think $80 would probably break the back.
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Inflation gains remain modest but they are gains. This suggests that interest rates will continue to rise as the Fed raises rates at the short end and bond traders discount trend growth and higher inflation at the long end.
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Increased domestic demand is now being satisfied by supply from abroad. Fewer domestic jobs have been created than the average historical experience and predicted by the models used by policy makers.
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Once that confidence is lost, foreign capital stops flowing here. We'll have much higher interest rates and a negative impact on the economy.
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On balance, I think it's the latter. In most businesses, inventories are in line with sales expectations.
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I've heard a lot of discussion the number could come out stronger. We have different models, and a couple of them have estimates where the number is higher.
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Taken together, all this employment data provides the Federal Reserve with a measure of confidence to allow an increase in the funds rate,
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Summer months can be particularly hazardous for forecasters, ... The timing of the end of the school year, seasonal hiring patterns and even weather can distort the monthly figure.