Robert Brusca
Robert Brusca
economy-and-economics happening mixed results
We're getting sort-of mixed results with what is happening in the economy.
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Worker productivity generally creates a scenario where employees realize they can begin to demand more for what they do. While the year-over-year productivity gains are still quite good, there is some evidence that wage inflation may be starting to creep in. The Fed won't like this.
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So while some special factors may be boosting spending, the overall trend of spending is well out of line with income growth. This tells us that this spending trend is unsustainable unless consumer income growth picks up sharply.
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During this recent period there may be some extra spending on the part of those recovering from hurricane disasters. But it is also true that comprehensive consumer spending has been outstripping income growth over this period,
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I think some of the job growth has been pushed forward. Behind the surface of these very strong reports, there are signs the economy has begun to slow down.
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Inflation decelerated across a broad spectrum of core CPI areas -- about 40 percent of prices in the core showed declines in their year-over-year growth rate. That's a big proportion. The Fed is concerned and has a reason to be concerned.
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It means we sort of dodged another bullet on the inflation front. These kinds of numbers put the Federal Reserve in a difficult box. We don't have inflation, the economy is growing too fast, they are afraid it won't keep up, but it's hard for them to raise rates without any inflation on the doorstep.
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Back before the recession, we had strong job growth and no inflation. There's fuzzy thinking going on here -- I thought we'd broken the old idea that strong growth is bad. As long as productivity growth can remain high, fast job growth is not a problem.
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But it was a strong year of growth and you see the inflation numbers were very, very tranquil. If anything, bonds are going to focus on inflation so we should be seeing a good bond market reaction to this.
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Private sector job growth is still challenged. The report is not very good for the month alone, but the trends have actually improved, thanks to the revisions.
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As the rest of the world begins to recover and capital finds a better home overseas because U.S. bond yields don't look attractive and the U.S. stock markets looks like it fully valued or overvalued, ... (then) money doesn't flow here. And when money doesn't flow here, it starts to push bond yields up, and that starts to slow our growth and make the stock market look worse, and you start to get into this vicious circle instead of this wonderful circle you're in now.
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No doubt the numbers look pretty good up and down the line. However, I'm not convinced yet that the holidays are home free.
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Maybe the markets are glad to know they've got a cautionary guard at the monetary door,
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They are desperately concerned about maintaining inflation fighting credibility. So the Fed is not focused on inflation, it's focused on inflation in the future.