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July 2, 1992
The bond market had anticipated a worsethanexpected June employment report, but not one like this. 117,000 jobs disappeared (against an expected equivalent gain), and the Unemployment Rate surged to 7.8%.
The Purchasing Managers' Index fell to nogrowth territory, down in June to 52.8 from 56.3. New Home Sales slid another 5.6%, and Factory Orders were off .8%.
Today's employment report is the surprise capper in a slapstic black comedy between the Fed and the Laurel and Hardy of economics: Treasury Secretary Nicholas Brady and President George Bush.
Last week, under fire for having no program for economic recovery, Brady and Bush decided to bash the Fed in public.
Brady held that the Fed should ease again (presumably a lot and fast) to "overinsure the recovery." This sort of overeasing is excactly the inflationcreating mistake the Fed tends to make at the end of recessions (and in election years). Fear of this error keeps long term rates high. Nothing would help the recovery more than lower long rates.
While Brady was in his Stan Laurel act with the sixteen foot twobyfour, turning dazedly, and leaving a wake of concussed markets, Ollie weighed in.
George Bush has Alan Greenspan's phone number, and Mr. Greenspan will take any call the President cares to make. But the President chose a press conference to tell the Fed that its policy was too tight.
The Fed reacts to this sort of foolishness the way the cops do. Even if they wanted to ease (and they probably did, a little), they won't if it's going to look like somebody bribed them, or shoved them around. The Fed declined the opportunity for a chase scene, and maintained silence.
A couple of days later, Stan the Secretary, when criticized again for an absence of plan, said "We've gotten Fed Funds from 8.75% to 3.75%; that's a plan!" Yes, sir, it is; but it's not your plan, it's the Fed's.
Then, day before yesterday, Ollie's back, saying he knows the economy is much better than he's getting credit for. If so, Mr. President, why should the Fed ease?
In today's grand finale, Stan and Ollie win the pie fight with the cops (Fed cuts Discount Rate a half percent), but their car falls apart. If this jobs report is signalling a return to recession, Stan and Ollie are going to join the unemployed in January.
Boulder West will be closed Friday, July 3. Please page us if you need us.
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