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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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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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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By mid to late October, you're getting into the fourth quarter, and people are starting to look at their year-end results and deciding whether they can bail out now and still look good for the year. That's going to be as true now as it was (in 1987).
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The moment they think there are jobs there, they'll be out looking and the employment rate will start heading up again. I think that's on the whole a good sign at this point in the cycle.
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Any time there's a jump in one index, you start to worry about the other one. And any time one of them is tame, you tend to assume that the outlook for the other gets better.
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Monetary policy is the perfect instrument for these circumstances. The Fed can keep pushing as needed, but still can turn on a dime and pull back as soon as spending starts to rebound.
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Now we're starting to see that wash out, and we're seeing that the labor market really has been gradually strengthening for most of the first half of this year. And this is fundamentally good news for consumers and for the health of the recovery going forward.
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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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Inflation is a potential risk. It's not a reality yet.
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It's another in the long series of the no-news-is-good-news story about inflation.
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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.