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Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Les H who wrote (23112)	8/16/1999 12:02:00 PM
From: Les H	Respond to of 99985

Northern Trust Daily Economic Commentary ntrs.com Their read on the Beige Book - Shortages Daily Economic Commentary US Wednesday, August 11, 1999 Beige Book Headline - "Shortages!" The latest installment of the Beige indicated that economic activity was being constrained by widespread shortages. Retail sales might have been stronger had there been more air conditioners and Capri pants back in the storerooms. More houses might have been started and completed had there been more drywallers and drywall. More widgets might have been manufactured had there been more lathe operators widget components. And more corporate tech help desks would have provided faster solutions to problems had there been more computer nerds. I cannot remember a Beige Book this cycle talking more about shortages than this one. (Of course, as readers of yesterday's commentary can attest to, I cannot remember how to spell vise, either. I guess my vice is that I'm hooked on phonics.) Productivity might be growing, but, according to the Beige Book, it is not growing fast enough to prevent shortages and bottlenecks. Greenspan is fond of saying that the laws of supply and demand cannot be repealed. What the Beige Book describes is a situation of excess demand for a wide range of goods and services. When there is excess demand for corn, corn prices rise. When there is excess aggregate demand, general price levels, such as the CPI, go up. If excess demand is not alleviated in its infancy, then general price levels will go up a lot more. On August 24, Greenspan & Co. are likely to try to nip this excess demand in the bud by raising the fed funds rate by 25 basis points. If the next round of core PPI or CPI data should show that inflation already is starting to bloom, then a 50 basis point hike on August 24 is not out of the question. The Beige Book played down wage increases despite labor shortages. Perhaps wage growth in many Districts did not accelerate from the time of the June 15 Beige Book, but that installment said that wage pressures were becoming more pronounced. Perhaps the growth in nonfarm hourly compensation did not accelerate from its 5.1% annualized pace, as reported in the second quarter productivity data, but a steady state of 5.1% growth might have inflationary implications. I suspect that the widespread reports of shortages in this Beige Book will increase the intensity with which Greenspan squeezes the tightening trigger than the reported absence of additional wage pressures will cause him to let up. Paul Kasriel Chief Domestic Economist