Bill Cheney
Bill Cheney
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With today's report, the odds of a negative quarter of GDP growth have increased substantially, and the chances of a full-fledged recession just went up -- perhaps approaching 50-50. Job losses cut directly into the spending of the newly unemployed, and indirectly tend to have a very real impact on the confidence of those who are still working. If demand falls, firms will lay off more employees, and the downward spiral could put us over the edge into a bona fide recession before the Fed's actions can take effect.
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In principle, rapid productivity should make wages rise, but it seems that until the job market tightens up a bit, all the productivity gains flow to corporate profits.
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It's too early to call a turn in the trend, so Alan Greenspan can't relax completely, but it's certainly the kind of report that will help him sleep better. There's still no sign of wage inflation and we seem to be heading for a soft landing: a smooth slowdown into sustainable non-inflationary growth.
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Businesses seem to be doing everything they can to increase profits without increasing hiring. Unfortunately for the labor market, they appear to be quite successful.
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Given the absence of core inflation, it seems to me as good a time as any to pause and see what's happening for a few months rather than overshoot and risk a recession.
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This is a perfect jobs report. Job growth slowed significantly and there are absolutely no signs of inflation. Greenspan may be pulling off what once seemed impossible: two soft landings in one economic expansion.
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Santa's workshop will be operating pretty much at full capacity. There just probably won't be much elf overtime.
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If unemployment sticks at about 6.0 percent and starts coming down, the Fed will probably feel it has to start tightening fairly soon.
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Inflation is a potential risk. It's not a reality yet.
series
It's another in the long series of the no-news-is-good-news story about inflation.
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I think we're toward the end of a period of real weakness and, by the third quarter, all the money (Fed Chairman Alan) Greenspan and the Fed have been pumping out will start to be spent.
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I think the job market is on a roll. Businesses are doing pretty well these days. Profits are growing nicely. I think businesses are at a point where they feel more comfortable adding people.
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It certainly too soon to be sure, but I think it's a very strong indication that hiring is getting on track.
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If you're living on the edge, then when the price of gas and heating oil goes up, you end up over the edge.