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Pastimes : The Justa & Lars Honors Bob Brinker Investment Club -- Ignore unavailable to you. Want to Upgrade?

To: Wally Mastroly who wrote (14407)	6/13/2000 9:38:00 AM
From: Wally Mastroly	Respond to of 15132

Cleveland FED warns can get 'misleading picture' from recent data (via Les H.): 12:24 EDT 06/12 By Steven K. Beckner Market News International - Financial market participants should guard against getting "a misleading picture" from recent economic data, according to the Cleveland Federal Reserve Bank's latest "Economic Trends." Although the financial markets concluded from the May employment report that the economy has slowed, that report can be used to support the view that economic growth remains strong, said "Economic Trends," which cautions against using month-to-month data to support preconceived views. The Cleveland Fed publication is written by President Jerry Jordan's top economic adviser Mark Sniderman and his staff. Jordan is a voting member of the Fed's policymaking Federal Open Market Committee this year. The lead article notes that the May employment report, with its 116,000 drop in private payrolls, two tenths percentage point increase in unemployment to 4.1% and more moderate 0.1% rise in average hourly earnings, was read as confirming a slowdown and, hence, reducing the chances of further Fed tightening. But this is a premature conclusion to draw, it suggests. "Combining this (labor market) news with other recent data on housing markets and retail sales, financial market analysts have already begun to anticipate less monetary policy restraint from the Federal Reserve this year than they expected just after the Federal Open Market Committee's May 16 meeting," the article says. However, "if history offers any insight into market assessments, we should expect several twists and turns before the economy's trajectory and the ultimate stance of monetary policy becomes clearer," the article continues. "Although current economic data are all we have to work with, they can present a misleading picture of underlying conditions." Given unreliable sampling techniques and seasonal adjustment problems, government statistics "can create false impressions," the Cleveland Fed staff wrote. "History shows that analysts -- and policymakers -- have made incorrect inferences and decisions as a result of blurred vision." What's more, people tend to evaluate incoming data through their own "mental frame of reference," the article points out. "If one's reference frame has the economy slowing down over the year (as the conventional wisdom predicts), one would naturally interpret the May labor numbers as corroborating evidence," the Fed publication observes. "If, however, one's reference frame featured continued strong growth, the overall May figures could be used to support that view; after all, the total May increase exceeds the monthly averages of both the entire expansion and 1999." The article goes on to note that expectations of slowing over the previous five years have proven false. The Cleveland Fed publication also questions "how much faith should be placed in the need to slow real economic growth in order to restrain inflationary pressures." "If the public knows that the Fed is committed to resisting inflation increases, price-setting behavior will be disciplined accordingly," it continues. "History shows that along with the pitfalls associated with reliably manipulating total demand, accurate real-time estimates of potential supply also can be quite elusive." "Those who see the world through the output-gap prism must be careful to recognize the ways in which incoming light can be distorted," the Cleveland Fed piece concludes.

To: Wally Mastroly who wrote (14407)	6/13/2000 10:00:00 AM
From: Justa Werkenstiff	Read Replies (2) \| Respond to of 15132

Wally: Re: "After six interest-rate increases by the Federal Reserve in the past year, the``medicine is working and the Fed won't have to raise interest rates anymore,'' said Cynthia Latta, an economist at Standard & Poor's DRI in Lexington, Massachusetts, before the report." Yah, Cynthia knows but the Greenman does not. Give me a break. Hey, Cynthia, if you think the medicine is working wait until the 4th Q. You may be complaining that it has worked too much. Cynthia, BTW, is married to Joey Bats <g>. But that is the bullish case. But could it be that the retail sales report is too cold for the market today? Remember, in Goldilocks land it can be neither too hot nor too cold -- it has to be just right. If it is too cold, the "e" gets hit; if it is too hot the "p" gets hit.