18 Sep 2003 A Little ‘Breezy’ Around Here
This week’s Brief will be just that due to Hurricane Isabel’s eminent arrival. With the likelihood that we might not have power or Internet connections tomorrow, we wanted to get it out today before conditions degrade, as they are doing pretty quickly.
The week has been lackluster in terms of market-moving news. The Fed left the benchmark rate unchanged at 1% and said pretty much the same things they said last month; that there is evidence of firming spending and that they remain watchful of signs of deflation. Their comments regarding the weakness in job creation implied there is room in their plans for further rate cuts.
Today, we received some welcome news on the jobs front. Initial jobless claims fell to 399,000, marking the first week in four that the number was below the 400,000 threshold the level that signals job weakness. Businesses have been able to keep up with demand without increasing jobs through efficiency. But, efficiency gains are finite in the short run. If demand continues, companies must eventually hire to improve the production necessary match that demand.
Another factor restraining job growth is the rapid loss of this country’s manufacturing base. Companies are moving their manufacturing facilities out of this country and locating them in countries where labor is dramatically cheaper, not only in wages, but in other factors as well. Developing countries do not have many of the restrictions to production and hiring that theU.S.does, such as unions, occupational safety regulations, payroll taxes, environmental concerns, and local zoning issues. Numerous countries, such asTaiwanandSingaporeare very aggressive in their tax structure in order to attract businesses. Most manufacturing workers who lose jobs these days will not return to manufacturing, but must be retrained for service jobs, or leave the work force entirely.
The Commerce Department said on Monday that theU.S.current account balance continues at a record $138.7 billion. The gap in trade shows tha tAmerica continues to spend or invest more on foreign goods and services than we are able to produce or save. According to Bloomberg, the size of the shortfall is 5.2% of GDP which is more than four times what it was 10 years ago. The deficit is made worse by the fact that theU.S.economy, while not thriving, is stronger than that of our trading partners. We have a larger appetite for imported goods than our trading partners have for American made goods and services.
The New York Conference Board this morning announced that the index of leading U.S. indicators rose in August for the fourth straight month, a sign the recovery continues. Just now the Philadelphia Fed released its regional manufacturing report which showed the fourth straight month of expansion, although at a slower than expected rate. However, any reading above zero signals growth. On the whole, regional surveys are confirming the thesis that business inventory replenishment will spur a boost in manufacturing which will in turn contribute to economic growth in the last half of this year.
The recovery continues, but its unevenness sews seeds of doubt among government officials, economists, investors, and business leaders alike. The last piece of the recovery puzzle is job creation. The conditions are as good as they will likely get in terms of stimulus and we do indeed see demand and production growth. Whether they can rise fast enough to spur job creation remains the question. But it is still too early to expect significant job improvement, so we remain patient and cautiously optimistic. So does Wall Street, at the moment.