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March 7, 1997
Once each year or so, an occasion gives cause to haul out this Churchill line: "Nothing in life is as exhilarating as being shot at, and missed."
This morning, at 8:30:20EST, twenty seconds after release of news of a 339,000-job surge in February payrolls, it appeared that the bond market had been hit square between the eyes. "Crashing" hardly describes the trading in those first, few seconds.
Then the "internals" of the report scrolled across screens: 109,000 of the jobs were construction ones, presumably temporary because of mild weather in most of the country. Earnings rose only three cents an hour, and December and January job growth was revised down.
At this writing, bonds are steady, yielding 6.86%, and 30-year mortgages are holding the low eights at low fees, high sevens with a point or two.
Mr. Greenspan spoke at length again this week, among other things saying he didn't believe he had the power to "jawbone" the stock market, that it was an improper use of monetary policy to attempt to "prick a market bubble" (sure, Alan; if you say soŠ), and the Fed looked at a wide variety of data to support its decisions.
Want a wide variety of data? This week, every single measure of the economy came in stronger than forecast.
Purchasing managers' index up to 53.1% (52%), personal income up .3% (unchanged), personal spending up .7% (.6%), leading indicators up .3% (.2%), factory orders up 2.5% (2.0%), new home sales up 8.6% (forecast down 2.3%), and initial claims for unemployment insurance down to an eight year low.
More. Change in the rate of M1 growth, each of the last five months: 6.3%, 6.7%, 7.7%, 8.3%, 9.9%. In bank reserves: -3.8%, +1.6%, +3.6%, +4.6%.
"Monetary policy" is a crude tool. It is deeply frustrating to Congresspersons, but the Fed can no more allocate money to a particular segment of the economy or people (the poor, for example), than to a particular Congressional district.
The real economy may be plugging along in healthy, non-inflationary growth, but if money is sloshing into financial market inflation, the Fed has to cut off the spigot. Take the chairman at face value: he is doing everything in his power to sell the markets, the politicians, and the people on the need to slow things down a bit.
I would not for a moment assume that dodging the payroll bullet today is any more than a temporary reprieve. The Fed funds rate is 5.25%; six month T-bills are trading at 5.42%, and one year T-bills at 5.70%, both in transparent anticipation of a Fed tightening later this month.
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