Living La Vida Local


Lou Barnes, mortgage broker and nationally syndicated columnist calls the recent increase in jobs “peanuts.”

“We need to be running 250,000-300,000 monthly to begin to catch up to population growth and to recoup the 2000-2003 losses,” he says. “Average hourly earnings rose one measly cent in November and grew only 2.1 percent in the whole year.”

Central bank Chairman Alan Greenspan declared, “Unless hiring picks up and layoffs ease, assuaging the latent job-security fears of many of those currently employed, the share of income spent could decline, a development that would hamper the vigor of the expansion.”

Economic theorists believe that the third quarter’s outstanding productivity performance is unlikely to be sustained. The quarter marked the close of one of the most protracted job slumps since the Great Depression. (According to the Labor Department, a mere 103,000 new positions were added in that period.) October saw a gain of 126,000 nonfarm payrolls with growth predicted through the end of the year.

The last time the Fed was in this position of a “jobless recovery” was following the 1990-91 recession. The government waited until Feb. 4, 1994, to raise rates — by which time payrolls had grown by 4.2 million jobs.

Barnes offers some interesting statistics: “Consumer confidence is up from the low 80s to low 90s (on a scale where 110-120 reflects a healthy and happy economy), and surveyors attribute gains to a better job market.

It is better, but only in that jobs are more secure. Unemployment claims are down to 360,000 monthly, roughly 20 percent below the prior two-year average.”

“The weak job market has kept a lid on wage growth and helped sink core consumer price inflation to its lowest level since 1966,” said Mark Gongloff, staff writer for CNN/Money. “Though there are plenty of signs of higher prices on the horizon — the dollar’s value has
been sinking, while oil, gold and plenty of other commodity prices have been rising. Most economists believe the Fed won’t raise short term rates, at least until it’s seen a few months
of solid job growth.”

The overall economic thought seems tobe that the Fed will need to see several months of payroll growth — at as much as 150,000 or 200,000 a month — before they’ll raise rates.

“There still is evidence that the most important sector of the economy, the labor market, is still only in the process of stabilizing,” observed former Fed economist Lara Rhame, now a senior economist with Brown Brothers Harriman. “It’s not in fullfledged recovery yet.”

At its most recent policy meeting, in late October, the Fed left its key short-term rate at the lowest level in more than 41 years and promised to keep rates low for a “considerable period.” This promise has helped keep treasury-bond prices stable and avoided a jump in long-term interest rates. (Bond yields and prices move in opposite directions).

“We will see some signs of toning down the term ‘considerable period.’ Holding to the same boiler plate will undercut their credibility,’ said former Fed economist Wayne Ayers.

Expect the economy to be in full swing by late next summer as we prepare for the 2004 presidential election.