The Case for a Fed Rate Hike
The Case for a Fed Rate Hike
May 22, 2010
By John Mauldin
The Case for a Fed Rate Hike
Employment Is Turning the Corner
The Headwinds of Money Supply
Who Stole the Inflation?
The Fed Is On Hold
An Inverted Yield Curve?
LA, Vancouver, San Francisco, and a First
Often Wrong, Seldom in Doubt
Everywhere there are arguments that we are in a “V”-shaped recovery. And there are signs that in fact that is the case. Today we will look at some of those, and then take up the topic of when the Fed will raise rates. We open the case and look at the evidence. Is there enough to come to a real conviction? I think there is. (And at the end of the letter I mention two conferences I am speaking at in the next few months, in Vancouver and San Francisco.)
But first, a little housekeeping. The delivery rate for this letter has not been good for some time now and we are aware of it. We get tons of letters and calls from long-time readers who want to know why we have dropped them from the list. They keep resubscribing but not getting the letter. It is a problem. I was not getting delivery on my own personal accounts from well-known email providers. We apologize for any inconvenience. Please know that we do not drop anyone from the list unless they request it or we get hard bounces or undeliverable messages.
Hopefully that has all changed with this letter. The problem has been that the list is so large that it is blocked long before the letter ever hits your inbox. The computers at service providers just assume anything this large can’t be for real. We are now using a service that is a third-party verification of our letter, which hopefully will fix the problem (not a cheap solution, by the way!). So, there may be a lot of you for whom this letter is (hopefully) a pleasant surprise after not getting it for some time.
If that is the case, we would like to know. If you have the time, drop me a response that says “got it” in the subject line. And of course, if you don’t want to get the letter you can hit the unsubscribe button at the bottom. But even better, why not forward this to a friend and tell them to subscribe?
For the record, we are working on a MAJOR revision of the website and the letter. There will be a lot more ways for you to interact with me and each other. A lot more information and capabilities. We are excited. It should be here by the fall. Tiffani and I think you are really going to like it. And now to the letter.
Employment Is Turning the Corner
There is a little-known employment report that the BLS (Bureau of Labor Statistics) releases late in the month that is a summary of the employment reports from the 50 states. Of late, this number has been higher than the federal government survey. Adding the states together, we find that 412,200 jobs (non-seasonally adjusted) were created in April, higher than the establishment survey (which for whatever reason gets the headlines) and more in line with the household survey, which showed an employment gain of 550,000 (seasonally adjusted).
I think it is well established by now that I am not a fan of the birth/death employment estimates in the establishment survey. That is where the BLS estimates the number of new jobs created by the birth or death of new businesses. It is often a significant portion of the jobs survey and it is a seasonally adjusted guess. There really is no alternative but to make this estimate, but at the beginnings of recessions it always overestimates the number of jobs, and at the beginnings of recoveries it will underestimate them.
Remember the “jobless recovery” of 2002-2004? Eventually (several years later) the BLS gets hard data from tax and other sources and goes back and revises the employment numbers. No one cares, because it is “old news.” But we can now look back and see the jobless recovery we thought we were in was not all that bad. The birth/death estimates decidedly understated the growth that was going on at the time.
That may be the case now, too. The much stronger state and household surveys suggest that we *may* be at the beginning of a labor recovery that will be understated by the establishment survey, as the birth/death model just won’t catch that growth. If this pattern continues for the next few months, I think we should begin to pay more attention to the state and households surveys. Let’s hope it does.
That being said, the level of reported increases is not showing up in the income tax reports. There may be several reasons for that, one of which is that people are going back to work for less money and thus paying less taxes. And that would make sense, as there are now five out of work people seeking jobs for every job opening. The employers have the negotiating power.
Businesses are cautiously building inventories and bringing people back to work. Sales-to-inventory levels are not out of line and suggest we may see more inventory building this quarter, which will directly help boost GDP. Retail sales growth is modest by previous recovery standards, but there is at least growth.
Tweet
Facebook
Reddit
Digg this!
