Monday, May 01, 2006

‘There Are No Guarantees’

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There Are No Guarantees.

***UPDATE Stocks fall as Federal Reserve Chairman Ben Bernanke hints that rate increases are not over yet.

A flood of data is going to hit Wall Street this week. It's explained how that might impact the ecomony in a story at, which points out that one area to watch is construction.
Construction employment, which slowed to a gain of 7,000 in March after hefty gains in January and February on warm and dry weather. Jobs in residential construction fell by 11,000 in March, the biggest decline since 2001 after more than 150,000 jobs were added in each of the past two years.

Further losses in the sector can be expected this year as the housing market slows.
The excerpt that follows explains in more detail why this week will be a key indicator for what to expect for months to come:
The data junkies at the Federal Reserve, whose every twitch is said to depend on the data, will get a full fix in the coming week. They might even OD on the stuff.

There'll be jobs data, inflation data, productivity data, production data, sales data, and borrowing data. There'll be updates from the factories, the stores, the auto dealers, the builders and the bankers.

The main thing to remember in this rush of numbers: Only big surprises will matter. If it's not a big surprise, it'll just confirm the Fed's medium-term forecast for slightly higher inflation and slightly slower growth.

And if the Fed's forecast is confirmed, then overnight interest rates are likely to go to 5% on May 10 and stay there for quite a while.

There are no guarantees from Ben Bernanke and his colleagues at the Federal Open Market Committee. But Bernanke set the bar very high in his testimony to Congress on Thursday when he said the data that had been received since the March meeting had not changed the Fed's assessment that "some" further tightening would be needed and that the end of the tightenings was likely near.

If a $7 per barrel increase in oil prices didn't change their minds, you can be sure that a miss of a few thousand on the nonfarm payrolls won't. If a 14% increase in new home sales didn't faze the Fed, it's unlikely that anything short of a collapse in the Institute for Supply Management index would register.

It's always true and perhaps never more so than now: Monthly swings in the data are irrelevant. Watch the trend!

-- The Boy in the Big Housing Bubble/Los Angeles and Beyond