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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: mishedlo who wrote (75189)	12/10/2006 2:04:16 PM
From: Crimson Ghost	Respond to of 110194

Economy on the Upswing Friday's Bureau of Labor Statistics' Employment Report appears to have put an end to the fears of recession as it reported upward revisions to prior jobs figures, confirmed the figures released earlier in the week by ADP's Employment Report, and also gave a preview of inflation to come. The report showed 132,000 new jobs created in November while the unemployment rate remained essentially unchanged at 4½%. As you know, the BLS has a history of undercounting the number of workers, but even their count showed almost a million new jobs had been created in the last year. Revisions pointed toward higher numbers for September and October as those two months combined for an increase of 282,000 jobs. According to Fed Governor Moskow, if the US economy were running at full capacity, it should be creating an average of 100,000 jobs per month. If the latest figures are not revised further, the new jobs creation figure for the latest three months (414,000) was running 38% faster than its trendline growth rate. This is good for workers, but bad for inflation because it means upward price pressure is building an inflationary surge. That assessment was bolstered by a rise in wages over the last year -- 4.1% -- more than twice the pace of inflation the Fed has set as its upper target. As you know, the real inflation rate is probably much higher than the government reports. This is the reason the Fed is constantly talking about the danger of inflation -- they know that the economy is not in danger of going into recession with so many new jobs being created and wages rising so quickly. Instead, the problem is that there is an increasing danger of an inflationary spiral getting out of control. If it does get out of control, the Fed will be forced to hike short term rates until a recession ensues, bringing inflation under control. Wall Street has been betting that the Fed will be cutting short term rates in 2007. This is the "Soft Landing" scenario so many have been talking about. The evidence suggests they are exactly wrong and that the Fed will be hiking short term rates to attempt to rein in inflation before it rises at an even higher rate. There may have already been a Soft Landing in the summer, followed by a Takeoff since then. The stock market has been saying that whatever pullback the economy was having is already over and a pickup in economic activity is well underway right now. And, evidence from a proprietary econometric model agrees. That model has correctly forecast the last three US recessions. More importantly, it has never forecast a recession which failed to appear. Right now, that model is saying the US economy is likely to continue expanding. In addition, it is saying that inflation is relatively high and likely to go even higher in the months ahead. Bob Carver