Thursday, May 01, 2008
NSA initial claims for April 26th rose and were up about 26% over the previous year's claims. Although the employment situation is not currently dire, it looks like it has crept into the reinforcing zone, in which unemployment reinforces low consumer spending, which causes companies to cut expenses and jobs....
Since fuel costs are the biggest source of increases, the hope is that consumers will get a break in the second quarter as heating costs drop and air conditioning expenses have yet to kick in. It's likely that will prove to provide more stimulation to the economy than those federal checks.
Those federal checks might help in allowing consumers to pay down their rolling utility bills in default. Unpaid utility bills have reached very high levels in many areas.
Personal Income for March is out. In chained 2000 dollars, disposable personal income did not increase. Nonfarm proprietor's incomes continued to decline as well. However personal current taxes keep rising, demonstrating that incomes are just not keeping pace with costs. This information squares well with the recent treasury receipt data.
The overall personal consumption price index increased 0.3% in March. Ex food and energy, it increased 0.2%. Not a good sign for the Fed.
At 10:00 I think construction spending and ISM are due out, and NACM should be published today.
I believe that yesterday's Fed cut will be the last for quite some time. Cuts should resume sometime very late in 2008 or early in 2009, but for now the worst effects on the economy are inflation, and the Fed has no incentive at all to cut until the Europeans begin cutting. And the Europeans will have to cut rates this year; the overall outlook and current trend for European economies just is not that great.
The Fed has done what it could do with monetary policy:
Note that the nonfinancial has been sustained pretty well, indicating that tight money hasn't been able to choke off available expansion in the real economy.
And see how low the yields on AA nonfinancial paper are - the Fed has done what it could do to prevent the financial crisis from becoming a Main Street crisis.
The dollar will now start to show some slowly building strength against many other currencies, which means that stock prices should stay relatively high over the next few months.