|
August 2, 1991
A shaky employment report this morning has mortgage discounts falling near their lows of the year.
NonFarm Payrolls, expected to rise by 50,000 jobs, instead fell 51,000 in July. The Unemployment Rate improved, down from 7.0% to 6.8%, and this week's Initial Jobless Claims fell 21,000, a sign of diminishing layoffs.
The July Purchasing Managers' Index enjoyed its fifth straight gain, to 51.8% from 50.9%.
New Home Sales surged 7.4% in June, and single family homes led a .3% rise in Construction Spending. Personal Income and Spending each rose .5% in June, joined by the Index of Leading Economic Indicators up .5%, its fifth gain in a row. Factory Orders fell 1.4% in June.
The $38 billion new cash Treasury auction is next week, and interest rates are falling? So what's the deal here? Okay, the jobs data was flat, but the rest of the info picture says the economy is cooking along just fine, thank you.
But the jawbone in the financial press rattles on: "Weakest recovery everŠ", "Double dip back into recession very likelyŠ", "One good quarter during a long recession is typicalŠ", "Real estate still going down for goodŠ", "Credit crunchŠ", "Banks and insurance companies joining S&LsŠ", "Inflation victoryŠ".
Now, some of this blather is designed to encourage investors to buy the blizzard of new Treasuries. A little kidding among brokers and victims is an old tradition it makes the sheep feel better, you see.
How much of this theeconomywillneverrecoveragain is real?
One part, related to the "credit crunch," is as real as can be. The Fed has been easier than Silverado Savings for nine months, but the money supply isn't growing.
When the Fed is easy, people are supposed to borrow, which increases the supply of money. Nobody knows whether the banks have turned hopelessly miserly (crunch time), whether the money is really there but the Fed can't find it (if they can't find BCCIŠ), or whether potential borrowers are too weak to qualify.
Whichever, M2 has grown at less than a 1% annual rate in the last 90 days. If the money really isn't there, the recovery can abort by fall, and there is no inflation worry.
Maybe so. But I'll feel better when the auction is over. The 30year bonds go next Thursday: if rates are still down on Friday, we may get new lows for the year. Meantime, if I had a loan in process, I'd take today's rates.
|
