Wednesday, April 4, 2012

Service sector follows moderate growth path

Although the level of service sector business activity remains well above a "neutral" 50, it is not particularly impressive from an historical perspective—only a little above average.

The Prices Paid index also remains well above 50, suggesting that a good many businesses in the service sector continue to see some inflation out there. Deflation has only been spotted a few times in the wild, according to this series, and then only during the depths of a recession.

The employment index was one of the bright spots, having now registered three straight months of fairly strong readings. This confirms the bigger-than-expected gains in the employment data in recent months.

Today's ADP estimate of private non farm employment gains in March came in close to expectations, but data for Jan. and Feb. were revised upwards. All of this suggests that Friday's jobs number will be at least as much as expectations (215K).

And so we see yet another string of data releases that show the economy continues to grow at a moderate pace (3-4%) with no sign of any emerging recession. Today's numbers fully justify the Fed's view, adopted at last month's FOMC meeting, that no further quantitative easing is required. Looking ahead, it becomes more and more clear that the Fed's next move will be to accelerate its timetable for raising short-term interest rates. If the economy continues to improve at its current pace, the rationale for keeping rates close to zero will collapse, sooner rather than later.


Benjamin Cole said...

At any moment, any nation is one inch away from becoming the Weimar Republic (and Nazism inevitably follows), or Zimbabwe or Argentina.

Nations with long records of moderate inflation and prosperity (which includes most Western economies, especially the USA from 1982 through 2008)) are anomalies.

Ergo, tight money is what we need.

Benjamin Cole said...

The market seems to know the result of tight money---and the fed is being passively tight right now.

The Associated Press
Investor anxiety causes stocks to nosedive
CNN - ‎1 hour ago‎

By Maureen Farrell @CNNMoneyMarkets April 4, 2012: 11:19 AM ET NEW YORK (CNNMoney) -- US stocks plunged Wednesday, as investors grew increasingly anxious about what the markets might look like without additional stimulus from the Federal Reserve.

Gee, can we have some QE and get the DJIA into new record heights? Would that be so bad?

William said...

ECRI Weekly Leading Indicator (WLI) has been improving since the being of 2012 as Scott Grannis predicted.

March 30, 2012 - 125.9
March 23, 2012 - 125.4
March 16, 2012 - 125.0

It was as low as 120 at the end of 2011.