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September 1, 1995
August payrolls surged by 249,000 new jobs, which under normal circumstances would have cratered the bond market and given mortgage rates a stratospheric ride.
Other circumstances are not normal: every other report was negative for the economy.
The purchasing managers' index dropped close to recession levels, to 46.9 from 50.5 (50 reflects a breakeven economy; anything lower says contraction); leading indicators fell .2% (the June .2% gain was the only positive reading so far in 1995); factory orders fell 1.3% (five drops out of the last six); and retail sales rose 1.5% (less than half the expected gain).
On this glorious, grim news, mortgage rates are the best in 60 days, just above 8.00% at "zero and zero."
Where did the recovery go? Wise-guys will insist that there never was one in the first place, and the healthy July numbers were only a stray bounce. WhicheverŠ where did it go?
One pat answer is that the Fed is too tight. Maybe; and we'll find out soon. Easing has just gone from not-a-chance to any-time-now.
Another suggestion? Look overseas. If our trading partners are weak, they can't buy our goods.
Item: Japan's banking system has misplaced somewhere between $400 billion and $800 billion (official versus private estimates) in the form of bad bank loans. Relative to the size of Japan's economy, this is a problem four to eight times the size of our little adventure with S&Ls, whose bailout required ten years and a recession.
Item: We may have a disappearing recovery, but there is nothing imaginary about the spreading collapse of Mexico's economy. Interest rates are bouncing between 50% and 100%, its banks have more bad loans than Japan's, and indebted citizens are in that special frame of mind between bankruptcy and revolution.
Item: Germany's Bundesbank finally, grudgingly knocked a quarter percent off its equivalent of the Fed funds rate, forced to do so by a 10% unemployment rate and weakening economy. Transfer payments from the West to the East are larger than the whole US budget deficit, are inflationary (which is why the Bundesbank is so tight), and threaten the political fabric of the reunited nation. Through currency exchange, Germany's anti-inflation mania is inflicting weak growth and high unemployment on the rest of Europe.
Before the world returns to full, post-vacation speed on Tuesday, give thanks. Our economy may be in non-recovery, but we're better off than the competition.
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