Popular
Economics Weekly
Better Growth
and Jobs Ahead?
The U.S. economy is now growing faster than the rest of the
world. And the Fed just announced it will discuss a possible expansion of the
size of its third round of bond buying and “better ways to guide markets about
future policy actions” at this Wednesday’s FOMC meeting.
This is huge, and markets rallied on the announcement because there is no other
stimulus spending in the works with austerity in Europe and even China
slowing. So it looks like the U.S. will once again be the world’s engine
of growth that prevents another recession.
Even Barron’s is sounding upbeat on future growth—at least according to the
Levy Forecast. http://levyforecast.com/jlwp/wp-content/uploads/2012/04/The-Contained-Depression-April-2012.pdf
The U.S. is “improving its manufacturing, competitiveness, containing its
depression, cleaning up private balance sheets, developing greater energy
independence” (read abundant natural gas)…“Furthermore, the people and
government of the U.S. have withstood all kinds of military, political, and
economic challenges without collapsing or losing their free markets or culture
of innovations.”
In the case of the Fed, words can mean as much as actions, since no one wants
to bet against our Federal Reserve—and by proxy the U.S. Dollar as the world’s
preeminent reserve currency.
The biggest monetary-policy development since the last Fed meeting was
that Narayana Kocherlakota, president of the Minneapolis Fed, also came out in
support of numerical targets. In what one Fed watcher called a plot twist out
of an Alfred Hitchcock movie, Kocherlakota called on the Fed to hold interest
rates at zero for another four years until the unemployment rate hits 5.5
percent. Only a few months earlier, Kocherlakota, a leading inflation hawk, had
advocated a rate hike before the end of this year.
Two signs of greater growth ahead were boosts in retail sales
and the Conference Board’s Index of Leading Economic Indicators (LEI).
Housing prices are also rising again as inventory shortages are slowing sales.
Graph: Econoday
The
consumer was out spending more than expected in September—even after
discounting
gasoline prices. Apple also appears to have bumped the
numbers up. Total retail sales in September advanced 1.1 percent after
gaining 1.2 percent the month before. Motor vehicle
sales increased 1.3
percent after a 1.8 percent jump in August.
The best known predictor of future growth is the LEI, and the Conference
Board’s index of leading indicators jumped in September but with help in August
from a downward revision. The leading index increased 0.6 percent in September,
following a 0.4 percent decline the prior month—originally down 0.1 percent.
Graph: Econoday
Graph: Calculated Risk
The Fed has made what amounts to a promise to not only keep interest rates low
for years—maybe up
to 4 years, if Fed Governor Kocherlakota is to be
believed—until the unemployment rates drop substantially. This is a promise that
not only the U.S., but the whole world will listen to given the Fed’s clout.
Harlan Green © 2012
