The Answers


Mr. Greenspan sees shadows. Shadows are not it seems part of the scenario of a recovery. Referring to the lack of light in certain areas as an incomplete process of recovery, he believes

Leading Economic Indicators May 2003
Average work week, production/manufacturing +0.05%
New orders for consumer goods +0.01%
New building permits +0.07%
Index of stock prices +0.16%
Money Supply +0.38%
Spread on Treasury notes compared to federal funds -0.13
Index of consumer expectations +0.27%


that by cutting rates again, he would do two things. One he and and his other Fed governors hope to stop the possible demon of deflation from taking root in the process. These folks know that they are close to a rate cut bottom. Once at zero, money supply would not have any short term effect on the recovery.

And secondly recoveries that are meaningful do not usually begin with the stop and start fits we have witnessed of late. A certain amount of smoothness in the numbers would indicate that the imbalances in the economy would have been taken out.

The F.O.M.C. understands that despite the sustained run-up in the stock market, despite the core inflation number (the one that excludes food and energy) rise to 3.2%, add to that the second consecutive monthly increase in the Conference Board survey and a slight drop-off in initial unemployment claims, more stability is needed.

Even though many of these numbers ar being interpreted as a sign that there is some sort of recovery afoot along with Mr. Greenspan, Ken Goldstein of the Conference Board was quoted as saying that "...the dangers in the first five months of the year have not disappeared completely". When looked at in the manner as the Fed Chairman, even unemployment doesn't seem as bad. Mr. Greenspan never really worried about a pool of available workers. He was more concerned that businesses had no faith in the operating climate and laid workers off as a result of that lack of commitment. To get the economy running at full tilt again, that pool of workers currently collecting unemployment needs to exist.

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