Thursday, May 26, 2005
Dr. Doom Says "Cheer Up!"
Interest rates: The Fed is really worried about a housing bubble. Sure, just as construction is absorbing workers displaced in other industries. More importantly, the high cost of housing is forcing dollars to be spent is less-than-attractive areas, revitalizing them. Economic booms take a long time to reach neglected inner cities, and there is a risk that the Fed will cut off economic growth out of a fear for inflation. Yet again, cities will be sorrily neglected for the good of all... yeah, right. The last to benefit will be the first ones cut off in an economic slowdown. What remined me of this was this WSJ story "Housing Boom Starts to Transform Distressed Cities": http://online.wsj.com/article/0,,SB111698873677942646,00.html?mod=todays_us_page_one
If the Fed keeps raising rates to pop the housing bubble (if there even is one), it's a reminder of the old adage "when elephants fight, the biggest losers are the ants." Let's hope after June's quarter point increase the Fed takes a long vacation.
GDP revised up: The advance estimate for Q1 was +3.1%, and the preliminary estimate was just revised to 3.5%. I didn't think it would go up that much as it looked like things were slowing a bit, but still growing. Recent revisions to employment data started to indicate the advance estimate was too low. My net new business indicator was very bullish: they still have trouble estimating how well small business is doing. I'm still expecting +3.5-4.25% this year overall.
How strong is the economy? State tax revenues are booming, at a rate 2x GDP growth.