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Pastimes : Clown-Free Zone... sorry, no clowns allowed -- Ignore unavailable to you. Want to Upgrade?

To: mishedlo who wrote (266231)	11/6/2003 6:38:01 PM
From: Lucretius	Respond to of 436258

like AMZN rocked his ass?

To: mishedlo who wrote (266231)	11/6/2003 6:48:51 PM
From: Haim R. Branisteanu	Read Replies (1) \| Respond to of 436258

Is The US Poised For A Strong Recovery? (more hubris do not know who the writer is) dailyfx.com Published date: 10/6/03 The missing link to a strong US economic recovery has primarily been the weak labor market. Up until last Friday, data out of the labor market has been disappointing, reflecting continued job losses, albeit at a slower pace. Friday's strong US non-farm payrolls data is the first evidence of what we believe to be the beginning of a labor market recovery. Despite the doomsday scenario of a jobless recovery that has been touted in the press, a labor market recovery is imminent. Reason being that historically, the labor market has always recovered after recessions. The most popular argument is that the labor market is generally the last sector to turn when an economy goes from a recessionary to an expansionary environment. With the US economy already poised for a moderate recovery and the 5% US fiscal deficit expected to provide short-term stimulus, US assets should benefit, which will be positive for the USD in the near term. · Why the labor market must recover Self-correcting problem The concept is simple. The reason why hiring lags is because companies want to make sure that the rebound in demand is not a temporary phenomenon, but instead represents sustained growth. The US economy is already on the road to recovery, and based upon recent business sentiment surveys, companies are increasingly optimistic about hiring. However, before hiring picks up, companies tend to increase productivity and the average work-week of their employees. The latest non-farm payrolls data shows an encouraging improvement in the average work-week in factories. Productivity has been rising consistently in the US, soaring 6.8% yoy in the April-to-June quarter, marking the largest increase since the first quarter of 2002. This is very positive for the US labor market. Coming out of recessions, companies will postpone hiring until they absolutely have to and have exhausted the overtime of their current employees. Since wages do not change as quickly as employment, there is generally a window of opportunity that makes hiring very attractive. Another indicator that is a good signal for the direction of the labor market is inventories. When an economy starts to recover, companies tend to rebuild their inventories in expectation of increased demand. A buildup in inventories requires more staff for restocking which will be a catalyst for hiring. Therefore once the economy recovers, the labor market will naturally recover as well. Regardless of the negative labor market headlines hitting the press, anyone with a basic comprehension of supply and demand will understand that once demand picks up, the current supplies of retailers will also shrink, requiring restocking, which will also increase their demand for goods, and accordingly snowball into benefits for the entire economy and the labor market. The Fed cannot hike rates unless unemployment declines The Fed is expected to maintain an accommodative monetary policy for an extended period of time partially because they will not be able to raise rates unless the labor market recovers, especially since next year is an election year. With the unpopular Iraq war and the weak economy, Bush is already facing strong criticism. Therefore even though GDP growth has been improving, if the government wants the labor market to recover, monetary policy needs to remain overly stimulative. Rates have been at 1.00% since June, yet jobs continue to be shed and hiring has not picked up. In recent sentiment surveys, corporations are optimistic about their hiring intentions, but they have yet to act on this optimism. Therefore, the Fed needs to keep rates low to stimulate corporations to increase their borrowing and capital spending (research and new product development), which would be expected to eventually lead to increased hiring. Maintaining an accommodative monetary policy provides the perfect backdrop for a strong recovery. · Fiscal deficit at 5% of GDP will be stimulative over the short term The government's responsibility is to increase spending and run budget deficits during recessions. In the 1930s, President Roosevelt significantly increased federal spending to end the Great Depression. In the long run, a huge and increasing budget deficit will drain the U.S. economy of wealth. As long as interest rates are low, this isn't a big problem. However, when interest rates begin to rise and the annual interest expense for the federal government becomes overbearing, Americans will find themselves paying hundreds of billions of dollars more to foreigners for benefits obtained in the past, substantially reducing the American standard of living. In the short run however, increasing budget deficits are beneficial for the US economy. With a $350 billion tax cut package and $87 billion reconstruction package for Iraq, we are spending our way out of recession. These packages are expected to provide short-term stimulus for the US economy. · US economy already poised for recovery Economic data out of the US has been improving over the past few months. Productivity, which is a key indicator in gauging long-term potential output and one that the Federal Reserve follows very closely, has been very strong. Consumer spending and residential investment have also been resilient. Although the retail sales release for the month of August was not as strong as expected, the drag came primarily from auto sales, with the ex-autos component rising healthily. Another sector that appears to be on a rebound is the corporate sector, with capital spending improving and both the new orders and future outlook components of manufacturing sentiment surveys on the rise. US equity markets are also healthy, with the Dow back above 9500, which is an approximate 20% rise from this year's low. · Implications for USD - US assets will benefit during recovery US assets will be clear beneficiaries of a US economic and labor market recovery. The US is expected to lead the global recovery at which time the divergence in the speed of economic recovery between the major economies will likely create another boom in foreign investment in the United States. With US GDP growth recently revised up from 2.2% to 2.6% and 3.6% to 3.9% for 2003 and 2004 respectively, by the IMF, the choices between rapidly recovering economies and stagnating ones will become more apparent. Therefore regardless of the longer-term pressures that the dollar faces, the U.S. dollar can strengthen in the near term as increasing optimism leads to accumulation of US assets.