Friday, August 05, 2005

The Big Picture: 207k New Jobs

The Big Picture: 207k New Jobs


Greenspan has had about 20 years on-the-job training and it shows. For a few months, folks have been carping on Greenspan's quarter point rate increases as if he is about to shoot the tires out on our economic Cadillac. Wages are up at about 2.5% over last year and total employment costs are up about 2.75%. Thus health care and other benefits are still inflating faster than wages but still not bad numbers. Depending on ones focus, one can now find evidence that the economy is growing a little too fast and evidence that it is slowing down a little too much. The month to month increase in wages says the economy is growing a little too fast.

After many months, we finally see positive real interest rates. Positive real interest rates should not be seen as a disaster but as an expected reality of how the market should be. Twenty some years ago, in a similar situation I said that if the Fed would loan me 200 Billion while offering me a 1% spread, I would be delighted to take the loan. It is amazing that the fed had to loan so over the past few years to nurse our economy to heath but the good news is that it worked; housing was the engine this cycle but now the whole train is taking housings lead. The Fed is now focused on making sure it did not do too much. The evidence suggest that the fed needs to just touch the brakes one or two more times and the next several hundred miles will be smooth.

No matter if Greenspan taps the brakes again or not, there will be lots more back seat driving. No one can see the speedometer. Even Greenspan has to guess at the current speed by watching the trees go by. He may see a report or two before the public but the right amount of gas and brakes is known only after we have traveled another hundred miles or so down the road.

Greenspan is doing a great job. Investors should have confidence and