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May 5, 1989
The mortgage market is reacting happily to weaker employment statistics than had been expected. This morning's report has Unemployment increasing .3% to 5.3%, and NonFarm Payroll up only 117,000. Payrolls had been jumping three times that figure consistently until a month ago.
Other data reinforcing the weakening economy viewpoint were March Construction Spending down .3%, Single Family Home Sales down 5.5%, and huge sales incentive programs could not produce strength in car sales.
However, to keep the prognostication picture murky, the Purchasing Manager's report rebounded 3.0% to 53.0%.
Fed officials have taken pains in the last two weeks to make clear their confidence that inflation is not accelerating, and that the current level of growth is "sustainable," and that they have no plans to tighten again soon. The optimists in the markets are in charge for the time being, and maybe rightly so.
The debate about the near term future of the economy has some key phrases: recession (if, when, and how deep), stagflation (how much stag vs. how much flation), and the crucial buzz line at the Fed, "soft landing." The nature of the landing refers to the glide slope of an economic slowdown engineered to foil inflation. Despite the best efforts of the Fed, it has been necessary to bust at least the landing gear in each postwar tightening episode.
It has been the objective of the Fed for decades to gain the ability to scientifically manage the economy. Ultimate success in the effort has been proclaimed and revised with some unfortunate frequency. References to soft landings while annual inflation has moved from 3% to 6% in a year seem a might selfsatisfied at this moment. In the presence of the budget and trade deficits, the Fed's risk is probably greater that the economy will take off in an inflationary spiral than land too hard.
The end of each of the next two weeks will bring inflation data which will give us a much better idea of the interest rate future.
The big story may be Colorado foreclosure numbers, particularly if the trend continues into summer. April 1989 foreclosures at 1207 in six metro counties is down 405 from a year ago, and 243 from March.
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