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May 7, 1993
New reports do not support the hope for an economic rebound in April after a bad weather March.
April Non-Farm Payrolls gained only 119,000, a result substantially weaker than expected. In another very poor report for April, the Purchasing Managers' Index collapsed to 49.7 from 53.4.
Four years ago, the Fed launched a campaign to drive the inflation rate down from the six-plus range. As late as 1990, the question was whether the Fed could be gentle its effort to reduce inflation, or would wreck the economy.
Every economic reporter in the country picked up the same descriptive phrase for the desired outcome: a "soft landing." This simile generated literary aerobatics involving gear up, no flaps, ground loop, dead stick, and, of course, crash landings.
Aside from hysterical accusations from New Englanders and Democrats in general about a "depression," a soft landing is exactly what the Fed engineered. The country had one of its mildest recessions ever.
Yesterday brought new evidence about just how mild a recession it was. The Labor Departemnt announced one of its periodic oops-a-daisies that make you wonder why anybody ever pays attention to economic statistics. It seems that a minor software glitch "created" 540,000 jobs at the end of the Reagan era, and then abruptly "lost" them during poor old George's recession. Slick Spendin' Willie has less from which to save us than he thought.
Unfortunately, no matter how shallow the recession, the recovery is arguably the softest ever.
Which brings us back to aerobatics. The pilot for the economy is the Federal Reserve, and our heroes are flying blind.
The key data for crushed-hat-and-goggles Alan Greenspan is the money supply. Money supply growth rates are supposed to give the Fed advance warning of changes in the economy.
M-2, the most watched money measure, has not grown in a year. Neither has the broader measure, M-3. If the historical relationship between money and the economy were holding, we would be in a depression after all.
We are aware of all the "reasons" for distorted money numbers. We are even more aware that the Fed's long range radar is on the fritz, and nobody knows if there is a hillside behind that next cloud, or if we are climbing just fine, and about to cruise happily at thirty-five grand.
There is a certain excitement about not knowing where you are going until the instant of arrival. Don't bother to fasten your seatbelt: if the Fed has made a significant error in navigation, the belt won't help at all.
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