| Philly Fed posts 2nd consective neg month, but component par |
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Jon
Preferred Member
Cash: $ 50.02
Posts: 193
Joined: 13 Apr 2005
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| Philly Fed posts 2nd consective neg month, but component par |
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The Philly Fed is a strange cat. It was very weak after the 2005 Gulf storms. It was weak to start 2006. It is weak at the start of fall. It was and is in conflict with the other regional and national manufacturing reports. Indeed, it is in conflict with itself.
First, it is very volatile given the relatively small region it covers. It has posted two consecutive downside numbers (-0.7% in October, -0.4% in September), but those follow Augusts reading that was the strongest in over a year (18.5). The Philly report tends to bounce around like a super ball, and these big swings take away credibility in the overall number.
Second, this regional manufacturing report’s overall number is not dependent upon its subparts. Respondents are asked their view of business overall, and that is the headline number. Then they are asked regarding the component parts, but those responses are not weighted, aggregated, or otherwise compiled to derive an overall activity level. Thus there is often disparity between feelings and reality. Nothing new there with respect to the economy, and it explains how the overall number is more an off the cuff sentiment measure than a real measure of activity.
The sub-parts were strong. New orders rose to 13.5. Shipments climbed to 5.3. Prices were lower once more with energy declines. The only negative readings were order backlogs and workweek length. The six-month outlook for business activity rose to 16.7, a 5 month high. It was a solid report outside the overall number. Perhaps sentiment was lower overall with the recent slower economic cycle. The economy appears to be picking up once again, however, so this sentiment survey has to be taken in a measured amount.
Initial jobless claims fall to 299K. Fed commentary to come?
In the late 1990’s and early 2000 one of the Fed’s talking points was jobless claims and employment. As jobless claims fell toward 300K the Fed was talking of a ‘tight’ job market and ‘wage-led’ inflation. During this recovery, the Fed was hoping for a decline in jobless claims toward 300K. Different times and different agendas. Back in 2000 the Fed wanted to cool the economy. In 2004 the Fed wanted to get the economy moving.
Now, however, the Fed has two years of hiking under its belt and it is worried about inflation. It has talked some of wages leading to inflation. Now with the jobless claims falling below 300K it is just a matter of time before we hear from our old friend Moskow about a job market that is too tight and just another indication that inflation is out of control. Lacker and Moskow are already on record with their frustration that inflation is not falling rapidly enough. This will only inflame them and we wonder if Moskow will be goaded into once again saying more people need to lose their jobs in order to save the economy. No doubt he was roundly criticized for the callousness of that previous comment, but time has passed and there is a new Fed chairman. He may feel it is his duty to speak out.
We should not be worried about employment. That is what we strive for. A healthy economy generates jobs. Jobs don’t cause inflation, improper management of money supply does. If the Fed creates too much money for the strength of the economy, the excess liquidity leads to inflation. The Fed had liquidity too high and then the initial round of tax cuts were demand-side and added to already solid demand at a time when supply was shut down. The excess liquidity from the Fed and the excess demand spawned the inflation we had up to a year ago. Since then Bernanke has bled off the money supply growth, something Greenspan would not do, and that has just about done the trick. We should be happy we have fewer jobless claims and more jobs and worry about how we can keep them as opposed to the belief that we need fewer jobs as a way to somehow protect prosperity. Just common sense tells you that if you have fewer jobs you have less prosperity.
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Mon Oct 23, 2006 1:28 pm |
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