econ update
Despite the recent scary stories about stalling or falling home prices, dozens of bankrupt mortgage lenders, and an unprecedented wave of upcoming home foreclosures, so far 2007 has been kind to stock and bond investors. Although we've seen a few sharply down days on world financial markets, as of last night all of Vanguard's mutual funds are in positive territory for the year-to-date. It doesn't matter what you invested in, you made money during this first quarter of 2007. WooHoo!
We're still in the you-can't-possibly-lose phase of the current business cycle. Yet I'm firmly expecting this to change by the end of the year. There will be losers when we tally it up on December 31, 2007.
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There's always differing opinions among economists and market watchers. Those predicting the end of the current business cycle don't yet have any hard evidence that the cycle has turned. Unemployment is still low. Profits are still climbing. Stock and bond prices are still firm.
The negative news from the subprime mortgage sector is described in the media as "contained". Flat retail sales are blamed on "the weather". Troubles in the automotive, construction, and manufacturing sectors "have not spread to the general economy". Falling home prices are limited to "a few frothy markets".
The Chairman of the Federal Reserve says it is not true that business cycles always get old and then turn downward. He also says we have entered an era of permanently inverted interest rates, in which short-term rates are higher than long-term rates.
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It is hard to call precisely when a business cycle will turn. This is because psychological factors vary more widely than underlying fundamentals. There is no formula that always signals exactly when a business cycle will turn, because there is no way to predict when the herd will spook.
At times like these, when it is clear to an economic historian that the business cycle is about to peak, mainstream newspapers and government officials try to avoid spooking the herd. They speak of soft landings, slowing growth, moderating prices, strong fundamentals. They point to lagging indicators rather than predictive indicators.
-----
The US Federal Reserve has reached a fork in the road, and they know it.
You can only hold short-term rates above long-term rates for so long, before various sectors of the economy start to blow up.
Now we are seeing various sectors of the economy starting to blow up.
If the Federal Reserve cuts interest rates soon, then the damage will not spread. If they don't cut rates soon, then the damage will spread.
But the Federal Reserve is also worried about inflation. According to their preferred measure of inflation, prices are still rising too quickly. If they cut rates now, inflation might get worse.
It is the classic central banker's dilemma. As business cycles age, central bankers get to choose between higher inflation and higher unemployment. It's a tough choice. But it is looking more and more like this Federal Reserve is going to choose higher unemployment. They're hoping people won't panic.
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HAGERSTOWN , MD - Citigroup announced Monday it's planning to lay off thousands of people around the world ...
AP. Circuit City Stores said today it plans to cut costs by laying off about 3400 retail workers ...
WASHINGTON - Fannie Mae, the District-based purchaser of home mortgages, plans to lay off several hundred workers by the end of the year ...
Seattle Post Intelligencer, WA - Plagued by slumping sales for new heavy-duty trucks, Paccar Inc. plans to lay off more workers and halt production for two weeks ...
GLOUCESTER CITY - Facing a fourth consecutive year of flat state funding, Gloucester City school officials are bracing to lay off 70 employees ...
DALLAS - According to a story in the Dallas Business Journal, it appears Texas Instruments is set for another round of layoffs ...
Boston Herald, MA - Troubles continue at Tweeter Home Entertainment Group Inc., which will close a third of its consumer electronics stores and lay off 650 of its 3100 workers ...
WLNS, MI - Tight budget times are forcing another local school district to lay off some of its teachers ...
NEWARK, OHIO - The Longaberger Co. of Newark said on Tuesday that it was laying off 710 workers in its basket-making and other manufacturing operations ...
News 10 Now, NY - A spokesman for General Motors says more than 180 workers at the Powertrain facility in Massena will be laid off next week. ...
Inside INdiana Business - Bluffton-based Franklin Electric Co., Inc. has announced that it will release 200 employees at its facility in Siloam Springs, Ark. ...
Houston Chronicle, TX - Biotech drug developer InterMune Inc. said Tuesday it will lay off half of its workers to reduce annual operating expenses ...
Fairfield County Business Journal, NY - TranSwitch Corp. is cutting more than 20 research positions this spring from its Shelton headquarters and a facility in Bedford, Mass. ...
We're still in the you-can't-possibly-lose phase of the current business cycle. Yet I'm firmly expecting this to change by the end of the year. There will be losers when we tally it up on December 31, 2007.
-----
There's always differing opinions among economists and market watchers. Those predicting the end of the current business cycle don't yet have any hard evidence that the cycle has turned. Unemployment is still low. Profits are still climbing. Stock and bond prices are still firm.
The negative news from the subprime mortgage sector is described in the media as "contained". Flat retail sales are blamed on "the weather". Troubles in the automotive, construction, and manufacturing sectors "have not spread to the general economy". Falling home prices are limited to "a few frothy markets".
The Chairman of the Federal Reserve says it is not true that business cycles always get old and then turn downward. He also says we have entered an era of permanently inverted interest rates, in which short-term rates are higher than long-term rates.
-----
It is hard to call precisely when a business cycle will turn. This is because psychological factors vary more widely than underlying fundamentals. There is no formula that always signals exactly when a business cycle will turn, because there is no way to predict when the herd will spook.
At times like these, when it is clear to an economic historian that the business cycle is about to peak, mainstream newspapers and government officials try to avoid spooking the herd. They speak of soft landings, slowing growth, moderating prices, strong fundamentals. They point to lagging indicators rather than predictive indicators.
-----
The US Federal Reserve has reached a fork in the road, and they know it.
You can only hold short-term rates above long-term rates for so long, before various sectors of the economy start to blow up.
Now we are seeing various sectors of the economy starting to blow up.
If the Federal Reserve cuts interest rates soon, then the damage will not spread. If they don't cut rates soon, then the damage will spread.
But the Federal Reserve is also worried about inflation. According to their preferred measure of inflation, prices are still rising too quickly. If they cut rates now, inflation might get worse.
It is the classic central banker's dilemma. As business cycles age, central bankers get to choose between higher inflation and higher unemployment. It's a tough choice. But it is looking more and more like this Federal Reserve is going to choose higher unemployment. They're hoping people won't panic.
-----
HAGERSTOWN , MD - Citigroup announced Monday it's planning to lay off thousands of people around the world ...
AP. Circuit City Stores said today it plans to cut costs by laying off about 3400 retail workers ...
WASHINGTON - Fannie Mae, the District-based purchaser of home mortgages, plans to lay off several hundred workers by the end of the year ...
Seattle Post Intelligencer, WA - Plagued by slumping sales for new heavy-duty trucks, Paccar Inc. plans to lay off more workers and halt production for two weeks ...
GLOUCESTER CITY - Facing a fourth consecutive year of flat state funding, Gloucester City school officials are bracing to lay off 70 employees ...
DALLAS - According to a story in the Dallas Business Journal, it appears Texas Instruments is set for another round of layoffs ...
Boston Herald, MA - Troubles continue at Tweeter Home Entertainment Group Inc., which will close a third of its consumer electronics stores and lay off 650 of its 3100 workers ...
WLNS, MI - Tight budget times are forcing another local school district to lay off some of its teachers ...
NEWARK, OHIO - The Longaberger Co. of Newark said on Tuesday that it was laying off 710 workers in its basket-making and other manufacturing operations ...
News 10 Now, NY - A spokesman for General Motors says more than 180 workers at the Powertrain facility in Massena will be laid off next week. ...
Inside INdiana Business - Bluffton-based Franklin Electric Co., Inc. has announced that it will release 200 employees at its facility in Siloam Springs, Ark. ...
Houston Chronicle, TX - Biotech drug developer InterMune Inc. said Tuesday it will lay off half of its workers to reduce annual operating expenses ...
Fairfield County Business Journal, NY - TranSwitch Corp. is cutting more than 20 research positions this spring from its Shelton headquarters and a facility in Bedford, Mass. ...