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August 8, 1997
Mortgage rates have completely reversed their July improvement, and it only took six trading days in August to do it. Thirty-year T-bonds closed at 6.29% last Thursday, and this morning crested 6.60%, taking mortgages to at least 7.75% at "zero and zero".
There was no single report this week to explain the bond market's continuing losses. The simplest observation is that a dramatic move in any market is likely to be followed by a counter-move, and from Memorial Day to last Thursday, bonds had gone from 7.05% to 6.29% in a straight line -- way overdue for a rebound.
However, several lesser events, all indicating wage pressure, were enough to unnerve any trader.
First was the Fed's "beige book", a monthly report from the twelve regional Federal Reserve banks. Boston, "employment steady or up"; Cleveland, "extremely low levels of unemployment"; Richmond, "labor markets tight"; Atlanta, "wage pressure in oil and gas market"; St. Louis, "tight labor markets"; Kansas City, "labor markets tight with some wages up".
The book described a strong economy everywhere, and had to reach for its customary notation of "pockets of weakness". The Minneapolis Fed complained that floods had caused "somewhat slack" bookings for Northern Minnesota canoe outfitters. Ya, you betcha. Had to be a recession somewhere, don'tcha know.
One of the best labor market indicators is the number of people filing new claims for unemployment insurance each week. The data series is wildly variable from week to week, but its long term moving average is usually right on. Any reading above 400,000 is recession territory, in the 300,000's a healthy economy, and in the 200,000's likely to attract unwelcome attention from the Fed.
The average has been in the low 300,000's for a year, and has suddenly begun to cross into the 200,000's.
In an economy this strong, with breathtaking corporate profits, why doesn't anybody want a raise? Why hasn't anybody gone on strike?
Now, somebody has. On it's face, the UPS strike is silly: a Teamster leadership fight may have been the "cause"; who in the world wouldn't prefer UPS as a pension fund manager over the Teamsters; and if any company can justify a high proportion of part-time workers, it's the heavily seasonal UPS.
If you're going to strike, why not strike for something sensible, like higher wages or lighter packages?
Nevertheless, it's still a strike, and there will be more, most with the right ideas. And wages will rise.
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