Why You Don't Want to Be Trading Bonds

For one, the next move in the fed funds rate, whenever it comes, is more likely to be an increase than a decrease.
Author:
Publish date:

92-30

JACKSON HOLE, Wyo. -- Here's the relevant

Meyer

quote:

If inflation does not move lower, while growth remains above trend and labor markets tighten further, it would, in my view, be appropriate to relink real federal funds rate movements back to changes in labor utilization rates. The failure to do so could run the risk of unleashing inflation pressures that would be disruptive to reverse.

And here's the relevant

Greenspan

quote:

The rapid increase in aggregate demand has generated growth of employment in excess of growth in population, causing the number of potential workers to fall since the mid-1990s at a rate of a bit under 1 million annually. We cannot judge with precision how much further this level can decline without sparking ever greater upward pressures on wages and prices. But, should labor market conditions continue to tighten, there has to be some point at which the rise in nominal wages will start increasingly outpacing the gains in labor productivity, and prices inevitably will begin to accelerate.

And here's what the April

employment report

said today:

The number of discouraged workers clocked in at 245k in April.

That marks an expansion low (see

Table A-10 for a description of discouraged workers).

Job leavers as a portion of the unemployed hit 13.9% in April.

That marks the biggest such percentage of the cycle (see

Table A-7 for job-leavers numbers).

The U-5 jobless rate clocked in at 5.2% in April.

It stood at 5.5% six months ago and 6.1% two years ago; this is the unemployment rate G. Love first mentioned in

testimony back in February (see the paragraph right before the "Ranges for Money and Credit" section). It is available in unadjusted form in

Table A-8. Your correspondent has applied the seasonal factor used for the regular unemployment rate to produce the adjusted numbers (6.1%, 5.5%, 5.2%) mentioned above.

Overall payrolls rose 234k in April.

That bested the 12-month moving average (230k) that prevailed heading into the month. That overall employment increases can print above trend

even in the face of a manufacturing sector that has chopped jobs during 13 of the past 15 months (for a total of 404k losses)

is unambiguously impressive.

Service-sector payrolls rose 261k in April.

That bested the 12-month moving average (238k) that prevailed heading into the month. Year-on-year service-sector payroll growth accelerated to 2.8% from 2.1% between April 1996 and April 1997. Care to guess what it's doing two years later? It's still rising at precisely a 2.8% year-on-year rate.

Employment data through April show no deceleration at all in service-sector job growth.

The nonfarm payrolls diffusion index rose to 55.2% in April from 46.5% in March.

That marks its highest level since December and its second highest level in nine months (see

Table B-6 for a description of the diffusion index). Meantime the manufacturing payrolls diffusion index rose to 43.9% in April from 36.7% in March. That marks its highest level since December and its second highest level since September.

Prerogative

And yes. Your correspondent listed here only the bearish things from today's report.

That's because it's my column. And that means you get my opinion as to what's important (and remember what they say about opinions).

But more important, it's because those also happen to be the things that matter most.

G. Love and Meyer have both made it clear that there rests a huge burden on the employment numbers to quit showing continued tightness.

They aren't doing it.

And they're what's speaking to the future of the economy (there will be no material and permanent slowdown for as long as employment numbers print like the April ones did);

Fed

policy (the next move in the

funds rate

, whenever it comes, is more likely to be an increase than a decrease); and market interest rates (the yield on the 30-year Treasury is more likely to hit 6% than it is to return to 4.7%).

Side Dish

Do not miss the

Detroit-Colorado

game tonight.

And please be serious about the poll. Honesty is the best policy.

For most of us.

Overall grade for columns this week?

A

B

C

D

F