"Economy on Fairly Firm Ground" - Greenspan

[tke711]

Full Story Here (http://news.yahoo.com/news?tmpl=story&u=/ap/20050609/ap_on_bi_ge/greenspan)

"The U.S. economy seems to be on a reasonably firm footing, and underlying inflation remains contained," Greenspan said in remarks to the congressional Joint Economic Committee.

He went on to say:
Greenspan said that overall economic growth, as measured by the gross domestic product, has grown at a healthy pace of 3.7 percent over the past year, helping to push the unemployment rate down to 5.1 percent in May, the lowest level since September 2001.

3.7 percent growth is a good and healthy growth rate. I know that the doomsdayers will say that it's not the much larger numbers we saw during the tech boom, but those same people never understand that we may never see those numbers again and they certainly aren't sustainable.

[ravital]

Right on the nose. 2%-3% would be healthy, 3.7% is actually better than that, and I remember when our Australian friend John told me that Finance Ministers around the world would kill for such a growth rate, if it can be sustained year after year.

However I'd still like to know more about what Bonds are saying on the short-term future. But this is certainly good news.

[ethics]

Too bad that the number of jobs increased was below expectations and that 5.1% rate is for the pool of unemployment which is really not a good indication of the job market.

Furthermore, the rate is determined by a survey.

[tke711]

You are just Mr. Doom & Gloom lately aren't you? :)

Have unemployment numbers been calculated the same way over the years? If so, and we are comparing today versus 2001, we are still comparing apples to apples right?

5.1% unemployment seems low by any standard, since full employment is a pipe dream that is not a reality.

[ethics]

Oh, I am not saying it's a bad thing, just take it with a grain of salt.

The best indictator to watch in employment is the US Employees on Nonfarm Payrolls Total MoM. Here's a news report that came out as soon as numbers were out last friday:

June 3 (Bloomberg) -- U.S. employers added 78,000 workers last
month, the fewest since August 2003, even as the unemployment rate
declined, fueling a debate about whether the Federal Reserve is
finished raising interest rates.
The increase in payrolls was less than half the number
expected and followed a gain of 274,000 jobs in April, according
to Labor Department figures in Washington today. The jobless rate,
which is determined by a separate survey of households instead of
employers, fell to 5.1 percent last month from 5.2 percent.
The divergent reports created ``confusion and uncertainty
about underlying conditions in the job market,'' said David
Resler, chief economist at Nomura Securities International Inc. in
New York. Given the weak payroll data, ``the starkly contrasting
evidence from the household survey only magnifies that
confusion.''

[ravital]

... since full employment is a pipe dream that is not a reality.

Well, it is... if you want to live in Singapore.

[Lovehound]

What I found interesting was his comments (http://news.yahoo.com/s/ap/20050609/ap_on_bi_ge/greenspan) on setting the prime interest rate:Greenspan said because of this the Fed was able at its last meeting to repeat a pledge it has been making for the past year that it will be able to move rates higher "at a pace that is likely to be measured."

Fed policy-makers next meet on June 29-30 and it is widely expected that the Fed will raise a key short-term rate, the federal funds rate, by another quarter-point to 3.25 percent at that time.

Many analysts believe that the Fed will keep raising rates by a quarter-point at later meetings this year, but others think the Fed may decide to pause in the rate hikes later in the summer or early fall.The prime inexorably creeping up a quarter percent every FOMC meeting (8 per yer) is bound to impact home prices and a wide range of other activities influenced by how much borrowed money costs. I will be looking forward to their next meeting June 29/30 and the remaining four meetings later in the year -- wondering how long the quarter point increases will be maintained. A continuation will be bad for borrowers and good for savers.

[tke711]

Moved to Economy forum.