Barrons picks up “No Goldilocks Economy”



Barron’s ran with last Tuesday’s No Goldilocks Economy in the weekend print edition:

"The [February] payroll survey’s job-creation number, headlined at 262,000 jobs, was the first robust report in a long while. Equity traders interpreted the data as bullish — and the markets were promptly off to the races (albeit on light volume). Yet bond markets sold off, as traders saw the data as inflationary — for about 30 seconds. Then, in a smart about-face, bonds rallied…so bond traders [must have] believed the data were benign, and not supportive of inflation.

How could the same data support a thesis of robust expansion yet not be inflationary? Note: 1) The unemployment rate ticked up, from 5.2 to 5.4%; 2) average hourly wages were unchanged; 3) long-term unemployed (27 weeks+) remained at 1.6 million; 4) persons holding more than one job increased by 432,000 to 7.7 million, 5.5% of total employment. That’s up from 5.3% a year earlier….

We see no signs of dangerous expansionary pressures. At best, the economic risks remain balanced."

I feel compelled to address an issue on the inflation side. Note the difference betweeen monetary  inflation — too much cash chasing too few goods — and demand inflation.

The price appreciation in China (and the rest of Asia) is a genuine demand phenomenon, and not a monetary issue. That’s significant as to whether inflation runs away or not (I say not).

Higher commodity prices tend to suck out discretionary spending that might go elsewhere, potentially bidding up prices. While that may be bad for retailers (especially discounters), it reduces the prospect for inflation increases . . .



No Goldilocks Economy
Wednesday, March 14, 2005

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