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February 6, 1998
The certain-to-slow economy has failed to cooperate, and bond and mortgage yields are near their highs of the last six weeks.
Bonds are having a tougher time than mortgages, struggling to hold under 6.00% (versus 5.68% three weeks ago), while low fee mortgages are in the 7.25% range.
In January, the Purchasing Managers' index slipped .3% to a still-strong 52.8%, while same-store retail sales doubled expectations in a 5.9% surge. December factory orders fell 2.5%, but the drop was caused by a 63% wipeout in traditionally volatile orders for airplanes. Plane crash aside, overall orders picked up 1.6%.
And in this morning's report, January payrolls gained 358,000 jobs, making it four months in a row with jobs growing one-and-a-half to double the forecast.
Ever since the Asian currency crisis first appeared last summer, we've been warned of the damage it would do to our economy.
Where is it?
Last week, no less a forecaster than Alan Greenspan said the "welcome" slowdown would arrive by "spring".
Okay, take it on faith: an Asia-caused slowdown is still coming. What might it look like? Is there any way to detect negative effects from Asia before they actually bite into the economy?
There should be one reliable advance warning: changes in the balance of Asia's trade with the rest of the world.
In the months ahead, the trade figures will transcend all other data (for example, in ordinary times, this morning's job numbers would have blown mortgages halfway back to 8.00% before noon).
The slowdown equation: no major nation in Asia will import as much from us in 1998 as it did last year; and all will simultaneously try (hard) to export to us a great deal more than ever before. This export effort will be aided by the various currency collapses, which will at least temporarily result in cheap prices for Asian goods.
Secondary effects on the U.S. are possible. Leading example: if the Asian trade whammy hits Europe harder than here, it will still hit here, just later, as Europeans won't be able to buy our exports.
Forget jobs, purchasing managers, CPI: the U.S. trade data are released in the third week of each month. If a client is thinking about locking or not, you might suggest that risk will expand on the 19th.
The absence of inflation puts a lid on how high rates could go if the economy confounds even Mr. Greenspan, and skips a springtime swoon. However, without a fainting spell, there is no way rates are going back down to match the wishful thinkers' thought.
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