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Strategies & Market Trends : Mish's Global Economic Trend Analysis
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To: Knighty Tin who wrote (4539)4/17/2004 10:36:16 AM
From: mishedlo  Read Replies (1) of 116555
 
When Alan Greenspan gives testimony before Congress next week on the US economy, investors will be listening even more carefully than usual for hints on the outlook for US interest rates.
.......
Revisions to prior months mean that on average the US economy created 171,000 jobs per month in the first quarter, a more stable guide than volatile monthly figures and a marked improvement on last year.

What has not changed is that real wages, adjusted for inflation, have been declining over the past six months. Other benefit costs have been rising - this has been outpaced by remarkably strong productivity growth.

Unit labour costs - total compensation costs per unit of output - have been declining for more than two years. Upward revisions to first- quarter growth forecasts, together with still modest employment gains, mean unit labour costs probably remain on a downward trend. While unit labour costs are declining, it is hard to see why core inflation pressures should build significantly. Wages account for more than two-thirds of total business costs.

"Economists do not have a particularly clear view on price formation," says John Lipsky, chief economist at JP Morgan. "But the idea that inflation starts with rising crude and other commodity prices and ripples through is outdated."

Employment growth may have picked up but labour market slack means there is little sign of inflation emanating from the labour market. The question is how patient - or pre-emptive - the Fed intends to be.

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