Inflation Calm

I won't say I told you so, but I did...............The Fed is now being stubborn and still talking big, rate cuts should still be in play.............

Fed's Preferred Price Gauge Dips Below 2% Into 'Comfort Zone'

The Fed's preferred measure of inflation dipped below 2% for the first time in three years in May, vindicating the Federal Reserve's decision to soften its description of inflation on Thursday.

At the same time, while personal incomes and consumer spending both grew in May, they did so a bit more slowly than expected.

The price index for personal consumption expenditures rose 0.5% in May compared to the prior month and 2.3% from a year earlier. Excluding food and energy, the "core" index rose 0.1% in May and 1.9% from a year earlier, the first reading below 2% since April, 2004.

The core PCE index is the Fed's preferred benchmark for inflation. Some Fed officials say their "comfort zone" for inflation is 1% to 2%. On Thursday, the Fed left its short-term interest rate target at 5.25% and dropped its description of core inflation as "somewhat elevated," but also warned it had yet to see convincing evidence the drop in inflation was lasting.

By GREG IP and JEFF BATER - WSJ
June 29, 2007 8:59 a.m.


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Homeowners Optimistic about Home Prices

Homeowners upbeat despite housing slowdown


NEW YORK - Slumping home sales and drooping prices haven't diminished homeowner optimism about their own nest egg's value, a recent survey shows.

The survey by Boston Consulting Group showed 55 percent of Americans believe they could sell their house for more money now than a year ago, down slightly from the 59 percent who felt that way last summer.

Nearly three-quarters think they could sell their homes within the next six months at a price they set, and 63 percent feel that real estate is a good or excellent investment.

Associated PressJun. 24, 2007 12:51 PM


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Nor Cal Job Growth Quite Robust

Northern California performed better than the state as a whole posting almost 60,000 new jobs in the bay area year over year and approximately 20,000 new jobs in the Sacramento region. Unemployment was also lower than the rest of the state. But the state performed well too, adding 224,000 new jobs in the last year.


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Housing Slump Over

Another Clip From Businessweek - Economic Outlook


U.S.: Is The Housing Recession Starting To Recede?
The drag on economic growth is easing, and home demand is firming up

It's still way too early to celebrate, but more and more signs suggest the housing recession is starting to ease its grip on the economy........

......Over the past three quarters the residential-construction segment of real gross domestic product has robbed 1 to 1.2 percentage points per quarter from the economy's annualized growth rate. Clearly, reports on housing remain mixed, but many economists are encouraged by key trends in housing starts, new-home sales, mortgage applications, and other indicators. Some analysts even think the second-quarter drag will be half that of recent quarters.....

.......Sales of new homes soared 16.2% in April, the largest monthly gain in 14 years, reaching an annual rate of 981,000......

....One bit of corroborating evidence that demand has stopped falling is the trend in weekly mortgage applications to buy a home, which has been on the rise since February. Through May 25, the four-week average of new filings was at its highest level since early 2006, according to data from the Mortgage Bankers Assn.

ALSO, IT APPEARS the subprime loan debacle is not causing a broader restriction on credit that would depress home sales to prime borrowers. Subprime mortgages are almost exclusively adjustable-rate loans, for which applications are down sharply over the past year. However, new paperwork for fixed-rate mortgages is up 40% from a year ago. .......


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Q2 Much Stronger than Most Expected

This Business Outlook is from the latest issue of Businessweek and contains a well depicted synopsis of the recent sources of strength in the U.S. economy and a detail of the rebound in the second quarter. If it all pans out to be true, then we had a soft landing and goldilocks lives on. One thing, though, is I disagree with the author's headline and premise; that the good news entails the next Fed move is a rate hike; in fact the next move should be a cut, even inf the face of last weeks bond market activity and the 10 year treasury yield rising t0 5.15, the 9o day t-bill still signifies a cut. Anyhow, enjoy.........

U.S.: Stop Thinking Rate Cut, Start Thinking Rate Hike With economic growth rebounding, it's time to revise expectations

After a long and pleasant dream about the Federal Reserve cutting interest rates, the financial markets are beginning to wake up to reality. That is, maybe the Fed's next move will be not to lower rates but to raise them. We won't see action anytime soon, but market expectations are starting to turn 180 degrees from where they were only a month or two ago.

Most Wall Street Fed watchers who had been predicting the central bank would cut rates are already either pushing those forecasts further into the future or abandoning them altogether. And options trading in federal funds futures, which can offer a reading on what the market expects the Fed's rate will be, implies a 43% chance that policymakers will lift rates by their Dec. 11 meeting.......

......What has changed? Economic reports are making it increasingly apparent that the slowdown in the economy is over, with little if any progress on either loosening up the labor markets or bringing inflation permanently back into the Fed's comfort zone

.......ALTHOUGH WASHINGTON revised first-quarter growth in real gross domestic product down to a puny 0.6% from its original estimate of 1.3%, the overall implication for future economic growth, based on the details of the report, was clearly encouraging. The GDP numbers showed that demand from U.S. consumers and businesses grew 2.5% during the quarter, a faster annual rate than first estimated. That pace was a speedup from 1.8% during the previous three quarters and the fastest in a year..........

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Auto Sales Rebounding in U.S.

Here Dr James Hamilton of Econobrowser depicts the untold story of the quietly rebounding auto sector. The headline: Sales this May were better than May of 2006 and 2005..............

Link Here

Trifecta of Good News

So we were treated to a trifecta of good news about the U.S. economy today.
The jobs number came in stronger than expected at 157,000, much improved over May. The ISM number came in at 55, the strongest in a year. And, as I stated again and again there is no inflation out there, and the numbers are starting to show with core inflation at 2.0% for the last 12 months, now in the Fed's "comfort zone"..........

Employers Nearly Double New Jobs in May, Hopeful Sign of Improving Economy

WASHINGTON (AP) -- The country's economic health may be improving. Employers nearly doubled the number of jobs they added to payrolls in May, allowing the unemployment rate to hold steady at a relatively low 4.5 percent. The fresh employment picture provided by the Labor Department on Friday showed job creation bounced back, with payrolls growing by 157,000 last month.....

.....The Institute for Supply Management's manufacturing index rose to 55 in May, the best showing in a year. A reading above 50 indicates growth, while a reading below 50 indicates contraction......

.......An inflation barometer -- excluding food and energy prices -- closely watched by the Fed moderated in April. The measure showed prices rising 2.0 percent over the last 12 months. That was down from a 2.1 percent increase for the 12 months ending in March.

By Jeannine Aversa, AP Economics Writer

Story Link Here