Ethan Harris
Ethan Harris
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Even in a healthy economy, you have layoffs, ... The Challenger number is more useful as a story telling device than an indicator.
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The reason the recovery was so feeble was you still had these hangover effects from the real estate and banking sectors, ... Real estate was still reeling from excess capacity and the whole thrift industry had been decimated by bad loans.
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Firms have cut back on their capital spending budgets to the point where some of them are not even replacing worn-out equipment. It's been quite a dramatic pullback, and in some sense there's some pent-up demand out there for capital equipment.
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But the obvious effect is on utility consumption, which will affect industrial output in the economy. People consume more electricity, that places more demand on natural gas, coal, power, and electrical systems.
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What happened is that initially the market breathed a sigh of relief when the storm was downgraded to a Category 4 and missed New Orleans, ... they are starting to look at the damage more seriously. We are seeing further upward pressure on oil prices. People are starting to think about the many aspects of the destruction here.
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More and more of the job losses are in industries that are effectively closing down domestically. This has been a gradual process since the 1950s, but it seems to have accelerated.
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Now you are entering a much more uncertain period.
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People will wake up and realize the war on terror has just moved one step forward,
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Only with very weak U.S. growth or a major drop in the U.S. dollar will the trade deficit improve on a sustained basis. The reason you need these dramatic movements is that the U.S. has, according to almost every study, an incredible appetite for imports.
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Obviously we have a pretty weak economy and this was not unexpected. We knew they were going to have to revise it downward.
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We needed 20 percent economic growth in the third quarter to get rid of all of the excess capacity in the economy. The Fed is still going to be concerned about disinflation.
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These continued claims are a sign the unemployment rate is still on an upward trajectory. There are still a lot of people out of work out there.
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The surplus creates an environment where there's a tremendous amount of saving being freed up for private investment every time the government pays down its debt, that frees funds to flow into private investments. That has created this strong growth economy that we have.
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The third quarter was the sweet spot for profits from an economic perspective. You had this pickup in growth, but you didn't have the pickup in costs. In terms of growth, this is the best quarter we're going to see.