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August 30, 1991
Rates are up slightly this morning on two reports of economic strength.
The early week reports all described a shaky economy, and rates improved for a while. Existing Home Sales fell 6.7% in July, joined by New Home Sales off 8.5%, while Personal Income fell .1%. Consumer Confidence edged down to 76.3 from 77.7.
But this morning, July Leading Economic Indicators gained a very healthy 1.2%, and Factory Orders jumped 6.2%. The Factory report confirms that last week's spectacular rise in Durable Goods Orders was not a fluke.
The people of Russia and the newly independent republics are not the only ones jubilant at the Second Russian Revolution. Just think of American farmers.
Some other celebrants are grateful for the cover provided by all the excitement. For example, the prior and present management at Salomon, the RTC and FDIC, Bush's domestic advisers, Democrats trying to escape the '92 nomination, and our old, deep cover favorite, the Fed.
Were it not for the splendid distraction in Russia, there would be a goodsized mob after the head of Chairman Greenspan.
On Wednesday, the Commerce Department issued one of those tiresome revisions to a prior report: Second Quarter GNP did not grow by .4%, it contracted by .1%. The recession didn't end in March; it was still going in June, and may not have stopped yet.
Under normal circumstances, this would be big news, and fodder for Democratic cannon. This time nobody noticed. The Democrats are too busy trying to get an angle on Bush. Their new deal? If we can't give away money at home any more, we'll give it to the Russians, and fix their economy!
Aside from a missed opportunity to bash the Fed, what is the reality here? Is the GNP report some sign of disaster?
Not likely. Recoveries from recession tend to be as steep as the recession was deep. This recession (whether over or not) has been as shallow as you'll find, and so will the recovery likely be. The economy is flat, has been flat, and will stay flat.
Until some surprise. Like maybe next Friday, when we get August employment data.
Meanwhile, your clients may be a little confused. Any economic analysis from the Easy Coast makes it sound as though the world is coming to and end. Heartlanders (Texans!) wonder what all the worry is about.
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