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September 3, 1993
Bad news about the job market has driven Treasury yields to new lows: 5.94% on the 30-year bond.
Mortgage markets have not improved as much today, largely because of caution in front of a long weekend. Mr. Clinton is back from vacation, and almost anything could happen in three days.
Non-Farm Payrolls, projected to rise by 150,000, lost 34,000 jobs in August.
Other data were just as weak. The August Purchasing Managers' Index fell to 49.3 from 49.5, while July reports had New Home Sales down 5%, Construction Spending off .5%, Factory Orders down 2.1%, Leading Indicators down .1%, and Personal Income down .2%.
Oh, and Consumer Confidence fell again. Wonder why.
There was another report this week, a deep backgrounder, containing time-released good news.
It seems that economic growth in 1992 was much better than anyone knew at the time, or discovered in revisions early in 1993.
The final 1993 Gross Domestic Product growth rates, per quarter, in order, turn out to have been: 3.5, 2.8, 3.4, and 5.7. Pink of health, actually, and almost double what was thought at the time.
You may recall some conversation last year about "the depression the country is in," and "It's the economy, dummy!" Poor George.
This revision makes it clear that the uptick in inflation this spring was triggered by a too-hot economy in the fourth quarter of 1992. A near-six percent growth rate will create price pressure no matter what else is going on.
The economy is no longer remotely "too hot." Thoughts of 3% growth in 1993 are being abandoned by returning vacationers, and even 2% may not be in the cards.
The inflation scare was an aftershock, not a forewarning.
If the economy is cooling, where is the Fed? The Chairman did a beautiful job in his inflation watchdog performance this summer, but where is he now?
Maintaining invisible delight, probably. If anybody in Washington had any political power, they would by now have forced the Fed to ease. There is a good argument that the Fed should have the Fed Funds rate down to 2.00% or below, not 3.00% where the Fed's held it for a year.
The Fed doesn't want to ease until it has squashed the last inflation expectations, as measured by long term interest rates. The expectation removal is accomplished by holding the economy flat.
There is no bottom to long rates until somebody or something makes the Fed goose the economy.
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