by Drew J Jones
Tue Jan 17th, 2006 at 10:27:57 PM EST
Ben Bernanke will be taking over the Federal Reserve at what is clearly a time of uncertainty. You need only read any newspaper or magazine to know this -- from the bullish Bushies at The Wall Street Journal and CNBC to the more reasonable elements at The Economist and in the Comments & Analysis section of the Financial Times. For all the talk of the Dow hitting 11,000 again, nobody seems to notice that it's back down to below 10,900, and has, literally, been flat for a year:
John Authers of the FT rightly notes, on the market passing the 11,000 mark, that we've seen this all before. This is not a performance worthy of tremendous praise from anyone except Larry Kudlow and the WSJ editorial board. And, as it relates to jobs, it may not get any better for a while. Combined with oil prices, again on the rise, and an apparently-deflating bubble in the housing market, Bernanke may be in for a rough freshman year. What can we expect as the year progresses?
Now, despite the bullish assessment from The Wall Street Journal's talking heads, on television and among the editorial board members, the paper reported today that economists are downgrading their estimates to a rate of less than 3%:
Largely because consumer spending slowed to a near halt in the fourth quarter last year, overall economic growth fell below a 3% annual rate, economists estimate, after 10 quarters averaging about 4%. Many attribute the fourth-quarter slowdown to temporary factors, and the consensus estimate for growth this year is a still-solid 3.4%, according to the publication Blue Chip Economic Indicators.
The Fed is reportedly keen to see economic growth fall to its historic rate of just over 3%. (Why? Just control inflation, you schmucks.) That's all well and good, but Ed Hyman, chief economist of ISI Group, tells the Journal that he expects growth to be around 2.5% for 2006. Job growth will actually slow, if you can believe that (just shocking), to about 100,000 per month -- meaning the unemployment rate will rise from today's 4.9% to 5.5%. But despite ISI's view that this would fit the "midcycle slowdown" that characterized 1984 and 1994, today's economy is, in no way, that of 1994.
For one thing, today's economy does not have the ability to fall back on a feverish boom, as was the case in 1994. Growth slowed even more, to 1%, but would rise to around 4% per year for a stunning period of time. Even after taking away the Dot-Com Bubble, growth was incredibly strong. Nor is the economy recovering from the severely depressed state of 1983. There hasn't been any stagflation. No Volcker Contraction.
A slowing economy, a fast-dampening housing market, and a stagnant Wall Street -- especially combined with increasingly-high interest rates -- do not make for favorable conditions in the market. Bernanke will be left to clean up Greenspan's asset inflation mess. And a recovery that has been week on job growth from the beginning, still with millions unemployed but uncounted due to statistical games, will leave an even larger number of Americans out of work.
What will the Bushie excuse be then?