Businesses have regained confidence in the sustainability of this economic expansion and have started to hire people in earnest. Employers are trying to boost employment by adding more workers, not more hours per worker. |
But give people more information, and we can incorporate it into our thinking process. We can attach and assign probabilities and then more or less go on with our normal lives. I think that's exactly what's unfolding. |
But if things start to go wrong -- if business spending doesn't pick up, or state and local governments lay off more people than anticipated, or auto sales fall off, or interest rates go much higher -- then a combination of these factors would really affect the economy going forward. |
By the time the election is over, the Fed might be in a position to increase rates more aggressively. In 2005, we might see rates going up more than a quarter (percentage point) every other month. |
Clearly, as a betting man, I would have to say the probability of a recession has gone up significantly, |
Clearly, the economic fundamentals of monetary and fiscal policies, as well as the falling value of the dollar, support a recovery. What we're not sure of is how strong the recovery is going to be. |
Clearly, the labor market is improving, and this should translate into more jobs in the future, |
Construction spending is always a lagging economic indicator, especially in commercial construction, because of the time it takes to plan, execute and build. I expect housing to be a stabilizer, but commercial construction to be a drag on economic growth for a while to come. |
Consumer demand has been tapped out, so we won't see a major thrust there, ... We're really counting on this replacement demand, especially in the high-tech area. |
Consumers are not on a spending spree, but they continue to spend, |
Corporate profits are likely to rise at double-digit rates in the second half of the year. And that will be hopefully enough to offset some of the negative psychology in the stock market -- assuming it doesn't get worse. |
Crowding out could become a distinct possibility in the future, pushing up interest rates significantly in 2005 and beyond, |
Customers we talk to are saying they're going to respond to increasing demand, but they won't do anything in anticipation of increasing demand, ... That's why employment, inventories and manufacturing will move in positive directions, but I don't think it will be anything spectacular. |
Dollar depreciation is good assuming it is taking place in an orderly manner. The concern is any precipitous plunge. If that were to happen the Fed would have to raise rates significantly. |
Employment gains are rising at a slower rate, retail sales are decelerating somewhat, the stock market is going through some turmoil and the Middle East situation is also probably having a dampening impact on consumers' willingness to spend, ... So I think the Michigan confidence report is consistent with an overall picture in which consumers are doing well, but probably taking a breather for a while. |