Looking Beyond a Meatless Meeting

That FOMC get-together means nothing compared with some of the things going on in the days ahead.

By James Padinha , Mar 30, 1999 3:56 PM EST

Everything Zen

JACKSON HOLE, Wyo. -- Good riddance to another nothing

FOMC

meeting. Now on to more important things.

The release of fourth-quarter corporate profit numbers Wednesday.

More on this tomorrow.

The release of March employment numbers Friday.

Some very bright people think that, owing to inclement weather during the

Bureau of Labor Statistics

survey week, the headline jobs number stands a pretty decent chance of printing negative. Say it does. Plenty of dim slowdown forecasters will then certainly prove asinine enough to read into a screwy employment print, even while every other labor-market measure under the sun screams tightness. Not so the brainful portion of the populace. A goofy March employment report means absolutely nothing to the fundamental economic outlook.

Nothing

. Would a sorry report prove seductive enough to suck in bond buyers? That shouldn't surprise anyone. Players are very much like

Spicoli

in that they are constantly seeking tasty waves.

But good luck timing when to bail. And do keep in mind that the market is entirely unprepared for a monster of a report. A few capable forecasters are betting on a job increase upwards of 300K; one can imagine the horror (and the bloodshed) if such estimates come to pass.

The release of March money numbers April 8 (or possibly April 15).

Year-on-year growth in the

measure of the money supply hit 8.7% in December (its biggest growth rate since March 1987), stayed there in January and decelerated to 8.5% in February. Year-on-year growth in the

measure hit 11.0% in December (its biggest growth rate since January 1985), decelerated to 10.5% in January and accelerated to 10.8% in March. Other growth measures -- check out the 13-week as well as the three- and six-month growth rates in Table 2 of the latest

money release -- show more marked decelerations.

This speaks to the money spigot; the

Fed

has been turning the tap left for four straight years. Is the rare and recent clockwise turn temporary, or have we already seen the kindest money numbers of the cycle? The March numbers will shed light on the answer, and a terribly important answer it is. Once the Fed quits growing money at an increasing rate, the party's over.

The release of the first-quarter employment cost index April 29.

The ECI was

growing at a 3.4% year-on-year rate as of the fourth quarter; wages and salaries were growing at a 3.7% rate, and benefit costs were growing at a 2.6% rate.

We all know by now that nominal wage growth can never again accelerate because the New Era is firmly in place, so go ahead, toss aside the wages-and-salaries piece of the equation. (Do note that an aberrantly low 0.1% increase in February hourly earnings already pretty much guarantees a deceleration in first-quarter wages and salaries.) But do mind the benefit-costs portion. The

consumer price index for medical care

suggests that benefit costs will post a 0.8% first-quarter increase; that will bring year-on-year growth in benefit costs to 3.1%, which marks its biggest growth rate since the fourth quarter of 1994.

And that will be enough to push year-on-year ECI growth to 3.5% from 3.4%. It won't be enough to snap Fed heads, but it is bound to produce rubbernecking.

The release of first-quarter gross domestic product numbers April 30.

The GDP release always includes something called the price index for gross domestic purchases (or PIGDPU). It measures the prices of everything Americans buy, including imports; it is the broadest available measure of all prices paid by U.S. residents. This inflation measure put in a bottom a year ago, when it fell 0.2% during the first quarter. It then went on to rise 0.4% during the second quarter, another 0.7% during the third and another 0.8% during the fourth. Meantime, the latest four quarterly increases in the PIGDPU less food and energy clock in at 0.7%, 0.7%. 0.7% and 0.9%, and the latest four increases in the PIGDPU less computers clock in at 0.4%, 1.0%, 1.3% and 1.3%.

Your narrator believes that the first-quarter increases produced by these three indices will do a lot to determine what happens at the May 18 FOMC

meeting. If the increases come in as big or bigger than their fourth-quarter counterparts, Fed members just may finally shut the hell up about not seeing any signs of price increase anywhere and consider seriously moving to a tightening bias at that time (assuming no major meltdowns between now and then). If they come in smaller than they did during the fourth quarter, Fed members are highly unlikely to see a need to move from a neutral bias in May.

The release of fourth-quarter productivity and labor-cost numbers for nonfinancial corporations May 11.

Fourth-quarter (and 1998) numbers have already been

released for the nonfarm business sector, but

Greenspan

is known to prefer the nonfinancial figures. Productivity in that area

rose 2.8% in 1996 but decelerated to 2.5% in 1997. As of last year's third quarter, it was rising at a 2.8% year-on-year rate. Unit labor costs, meanwhile, posted a 0.3% increase in 1996 and a 1.0% increase in 1997; they were rising at a 1.5% year-on-year rate as of the third quarter of 1998.

The failure of the productivity numbers to show continually material increases, especially against a backdrop of consistently accelerating labor costs, would trouble G. Love more than the abduction of the yellow ducky from his bathtub.

Side Dish

Are you kidding me? Kind of waiting to learn that the same person who bought that

Holyfield

judge also bought a couple of

Duke

kids.

Do keep listening to the people who tell you that the bond yield is headed back to 4.75% any second now. They've now been promising it every day for more than five months, and perhaps one day they'll prove dead right.

Check out this

link in the spirit of past

polls.

This is easily the best email I have gotten in months: