November 06, 2003

Peering Into the Crystal Ball

The always-wise John Berry of the Washington Post peers into his crystal ball and tries to gauge the future of the economy:

Greenspan Sees Job Market Poised for Growth (washingtonpost.com): ...Many forecasters, such as Joe Liro of Stone & McCarthy, a financial markets research firm, currently are predicting that economic growth will run at about a 4 percent annual rate in 2004 with productivity slowing to what Liro called "a still remarkable 3 percent rate or so." That combination of economic and productivity growth would be consistent with some job creation, but with the working age population expanding about 1 percent a year, there would not necessarily be enough jobs added to bring down the nation's 6.1 percent unemployment rate.

In his speech, Greenspan said that in the past, during recoveries following recessions, the Fed has had "to move aggressively" to raise interest rates to keep inflation contained. But this time inflation "has been running only a little more than 1 percent over the last year, and firms exhibit scant evidence that they are gaining appreciable pricing power despite the pickup in the pace of economic growth. . . . In these circumstances, monetary policy is able to be more patient."...

Investors and analysts have been divided over how soon they expect the Fed to begin to raise the target rate, with some saying it could come as soon as March, others not until next summer and a few predicting that unemployment will remain high enough next year that the first rate hike will not come until 2005....

Meanwhile on the job front, the Labor Department also reported that the number of initial claims for jobless benefits plunged last week to 348,000, the lowest level in almost three years, from 391,000 in each of the prior two weeks. Economists were not quite sure what to make of such an unexpectedly large decline and some suggested, that while the trend in jobless claims appears to be downward, that a seasonal adjustment quirk may have affected the latest week's figures.

Tomorrow the department will release a report covering employment and unemployment in October. Surveys of analysts show an expectation that the number of payroll jobs rose 60,000 last month, about the same as in September, with little or no change in the 6.1 percent jobless rate...

Posted by DeLong at November 6, 2003 12:32 PM | TrackBack

Comments

So why is the NYTimes finding a pending reversal of interest rate policy by the Fed?

http://www.nytimes.com/2003/11/06/business/06CND-ECON.html?hp

Greenspan Hints Era of Very Low Rates May Be Nearing End
By EDMUND L. ANDREWS

Alan Greenspan, chairman of the Federal Reserve Board, offered a first hint today that the era of rock-bottom interest rates may be drawing to a close....

Posted by: anne on November 6, 2003 12:57 PM

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My guess, Fed officials are trying to broaden the range of statements they make about the economy. by continuing to say things like low inflation allows the Fed to be patient, while at the same time resuming the once-standard comment that central banks must be ever-vigilant, there is more ambiguity about policy in 2004. If Q1 shows up as a consumer durable goods debacle, then the Fed is on the side of patience. If Q4 spins along at 4.5% rather than 3.5%, and the post holiday-shopping orgy drives inventories through the basement and into the subsoil, then the Fed is on record as saying the economy is firming up and the Fed is never complacent about inflation. Which of end of the broadening spectrum of officials comments will finally prove salient depends on the state of the economy over the next 2 or 3 quarters. Brad picks up Berry's comments mid-stream. Barry's first paragraph asserts that Greenspan's comments today were "his most upbeat assessment of the US economic outlook in years." So Berry and Andrews seem to agree.

Posted by: K Harris on November 6, 2003 01:50 PM

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There is some political pressure from elderly voters with short term investments (CDs bonds) that have had meager returns for several years now. Of course this needs to be balanced against a negative effect on jobs. Look for interest rates to start rising just soon enough before the 2004 election that any negative impact on jobs in not felt until late Nov or Dec 2004.

Call me cynical, but after his support for the 2001 tax cuts and comments favoring tax cuts over spending on health and social programs, I no longer view AG as a non-partisan. I believe that one must now factor partisan political strategies into Fed decisions to more accurately predict Fed policy.

Posted by: bakho on November 6, 2003 02:08 PM

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Atrios has a funny take on this at
http://atrios.blogspot.com/ :
"Shorter Alan Greenspan: While tax increases are contractionary, spending cuts are not."

Posted by: Stephen J Fromm on November 6, 2003 02:36 PM

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I'm 76 and I still have got everything under control.

Posted by: Gnao on November 6, 2003 02:55 PM

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Remember Greenspan is the one that when the Bush program was first introduced said in his Congressional testimony that we needed deficit so bond traders would have something to trade. If I were a bond trader it would make me feel good that Greenspan was so worried about my job security.

Posted by: spencer on November 6, 2003 05:11 PM

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I'd suspect a seasonal adjustment quirk related to retail stores starting to hire Christmas seasonal help earlier than ever, much as I'm seeing the Christmas decorations going up earlier each year, and it would take some time for this to be reflected in the adjustment. Also, even without the earlier-creeping, I would think there would be a discontinuity around Halloween anyway as they start bringing in the seasonals, and this could be affected by something as simple as what day of the week Halloween falls on this year. I must admit, though, I'd have guessed that having Nov. 1st on a Saturday would have driven adjusted new unemployment claims up a bit, the opposite of this. But I feel much safer thinking there would be such an effect than trying to guess which way it ought to go this year.

Posted by: John on November 7, 2003 05:27 AM

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I'd suspect a seasonal adjustment quirk related to retail stores starting to hire Christmas seasonal help earlier than ever, much as I'm seeing the Christmas decorations going up earlier each year, and it would take some time for this to be reflected in the adjustment. Also, even without the earlier-creeping, I would think there would be a discontinuity around Halloween anyway as they start bringing in the seasonals, and this could be affected by something as simple as what day of the week Halloween falls on this year. I must admit, though, I'd have guessed that having Nov. 1st on a Saturday would have driven adjusted new unemployment claims up a bit, the opposite of this. But I feel much safer thinking there would be such an effect than trying to guess which way it ought to go this year.

Posted by: John on November 7, 2003 05:31 AM

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