All posts by joel

August Import and Export Prices and Weekly Jobless Claims

KEY DATA: Imports: -1.8%; Nonfuel: -0.4%; Exports: -1.4%; Farm: -2.6%/ Claims: -6,000

IN A NUTSHELL: “Another day of data, another set of solid labor market but weak inflation numbers.”

WHAT IT MEANS: As we limp exhausted into the final week before the Fed either does something or forces us to face upwards of three more months of water torture, the data seem to be laughing in our faces. We would like the economy to be strong and inflation to be trending upward, but alas only one of those is happening. The good was a drop in the weekly jobless claims numbers. While the weekly data are volatile, the smoothed, four-week moving average has been pretty constant. It is quite clear that few firms are cutting back on their workforces.

On the bad side, if you consider consumer prices that don’t go anywhere a problem (consumers clearly don’t!), the prospects for inflation accelerating anytime soon are not great. Import prices tanked again in August and it wasn’t just energy. Industrial supplies excluding petroleum, consumer goods, vehicles and capital goods prices fell as well. Only the cost of imported food was up and that was due largely to a jump in seafood prices. Looking across the world, prices are down for every major region. Only some Southeast Asian countries increased their prices for goods sold in the U.S. Over the year, the biggest import price declines have come from countries throughout the Americas. The Pacific Rim nations have not been dumping their products on the American markets at greatly deflated prices. As for our exports, every major category posted a drop in prices except vehicles, which was flat. The agricultural sector has seen its prices fall by 14% over the year. That is a big ouch.

MARKETS AND FED POLICY IMPLICATIONS: Right now, investors are totally baffled, in part a consequence of the bizarre Fedspeak. Think of it: We had Bill Dudley saying that the data were “less compelling” but Stanley Fischer saying, “When the case is overwhelming, if you wait that long, you’ll be waiting too long”, and “There’s always uncertainty”. So, what’s “compelling”? And, what’s “too long”? While economists might enjoy the process of parsing sentences and even words, investors simply go crazy. Add to that the reality that if anyone can tell us what is going on in China, then we will all know, you have a state of uncertainty that can only create volatility, which is precisely what we have. One day it looks like China is not that bad and the markets rally. The next day the Fed might raise rates and stocks crash, though I wish I knew why a message that the economy is strong enough to absorb a rate hike is considered bad for business. It just shows how screwed up things are. So, let’s make it through this week and get to next week, when a new group of data, which includes retail sales, industrial production, consumer prices and housing starts will once again cause Fed members to twist like Chubby Checker. At lest they will be doing it in the semi-privacy of an FOMC meeting.

July Job Openings, Hires and Quits

KEY DATA: Openings: +430,000; Hires: -199,000; Quits: -43,000

IN A NUTSHELL: “With openings at record highs but hiring slowing, businesses are falling further behind on meeting their staffing needs.”

WHAT IT MEANS: It’s tough being an HR executive these days. On one side you have everyone saying they need more employees while on the other side you have workers hesitant to move and CFOs who don’t want to pay more. So what do you do? Apparently, punt! The Bureau of Labor Statistics reported that open requisitions for positions soared to a record high in July as companies in just about every industry had trouble finding new employees. Only the construction and arts and entertainment industries posted fewer openings. As has been the case for quite some time, the lack of workers is spread across skill levels. While professional and business services had the highest rate of openings, accommodation and food services came in second. Even with jobs openings growing by leaps and bounds, firms have not been able to find suitable workers at the wages they want to pay. Indeed, the rate of hiring declined. Part of the problem is that workers are just not leaving their jobs. The quit rate is still very low as employees still are willing to stay with the devil they know than the devil they don’t know. But that is likely to change and when it does, openings could spike even further.

MARKETS AND FED POLICY IMPLICATIONS: How long businesses can make due with so many opening positions is something I just cannot figure out. I would have thought that by now, firms would have capitulated and started to attract workers by paying more. But they haven’t. As the U.S. economy continues to expand, firms will have to find even more workers to meet the growing demand. With the unemployment rate pretty much at full employment and with the underemployed not meeting the skill, age or required salary profiles, there are not a lot of people out there to attract anyway. Normally, that sets off a bidding war, but we are not in normal times. Firms seem to be willing to go without and pray that productivity will save the day – or whatever has to be saved. But productivity has been lagging and as I have argued before, that may be because workers have learned that worker harder doesn’t lead to more income, so they just don’t work harder. In other words, firms are in a trap. They need to raise wages to attract workers, especially from other firms, but they are unwilling to do that. They hope to get more fro their employees but just providing a job doesn’t have the same impact now as it did five years ago. So, I will repeat my oft-repeated refrain: Wages need to rise if businesses are to produce more, households can buy more and growth can accelerate. Until that happens, we will remain in this moderate growth cycle and business leaders will continue to complain about the less than stellar economy. The Fed watches this report, known as JOLTS, carefully. The members are aware that the only way the current conditions don’t eventually lead to rapid wage growth and a rebound in inflation is if the economy slows. So, they can wait for the inevitable and raise rates then or assume the inevitable will occur and raise rates now. Next week’s FOMC meeting cannot come soon enough as we are all suffering Fed Fatigue.

August Employment Report

KEY DATA: Payrolls: +173,000; Revisions: +44,000; Private Sector: 140,000; Manufacturing: -17,000; Public Education: +32,600; Unemployment Rate: 5.1%; Hourly Wages: +0.3%

IN A NUTSHELL: “We’ve hit full employment, so is anyone surprised that firms are having trouble finding qualified workers to hire?”

WHAT IT MEANS: Yesterday, I worried that today’s report would be in that middle ground where the Fed could either use it to defend a rate hike or say it needs to see more. Well, on the surface, that is precisely what we got. On the disappointing side was the payroll gain, which came in below expectations. But the possibility of a light report was discussed as August tends to be a difficult month for government to estimate payrolls and there have been many revisions in the past. I suspect this year will be no different, especially since there were sharp upward revisions to both June and July’s totals. And, if you consider the past three months, the 221,000 average gain is in line with expectations. As for details, the huge decline in manufacturing was what tripped me up. Most of the drop came from the metals and food manufacturing industries. Vehicle makers ramped up hiring. With retail sales rebounding, vehicle demand soaring and housing accelerating, the cut backs should reverse very quickly. Meanwhile, the oil sector keeps downsizing. Mining is down 90,000 workers so far this year. In comparison, mining added 42,000 positions in 2014.

While payrolls disappointed, the unemployment situation didn’t. The unemployment rate declined to its lowest point since March 2008. While the labor force fell, there was a huge rise in the number employed, a major decline in the number unemployed and the labor force participation rate remained stable again. Hourly wages rose solidly, hours worked were up so total weekly earnings soared. It looks like firms are working people longer because they cannot find workers to hire.  


MARKETS AND FED POLICY IMPLICATIONS: Though some of today’s numbers were less than stellar, this was a very good report. Even at 173,000 a month, the unemployment rate will decline, so the payroll data are not weak. We are essentially at full employment and the wage gains should be sustained. Companies may be forced to move people from part-time to full-time. The secular trend toward depending more on part-timers may be slowed or even reversed as the reserve army of the unemployed/underemployed keeps shrinking rapidly. The alternative is to start paying up for new workers, which few firms still think is necessary. And it is unclear how many of those still looking for full-time work have the requisite skills to fill the openings. So forget U-6 and discouraged workers and participation rates falling (which it has been doing since April 2000!). This labor market is tight. Period. So, what will the Fed do? Wages are rising, incomes are growing and full employment is here. There is no labor market weakness for the Fed members to fall back on. Was this report strong enough to force a rate hike in September? No. Is it strong enough to support one? Yes. Will the Fed raise rates in September? I think they should and I expect they will, but this Fed has done a great job of obfuscating its intentions, so who knows?

August Non-Manufacturing Activity, July Trade Deficit and Weekly Jobless Claims

KEY DATA: ISM (NonMan.): -1.3 points; / Trade Deficit: $41.9 bil. ($3.3 bil. narrower)/ Claims: +12,000

IN A NUTSHELL: “The U.S. economy is showing no signs of slowing down despite the problems in Asia.”

WHAT IT MEANS: As we head into tomorrow’s “all-important” employment report, other data are painting the picture of a U.S. economy continuing to forward, even as stock prices bounce wildly. The services and construction portion is actually doing quite well. Yes, the Institute for Supply Management’s reading of business activity for the non-manufacturing segment fell a touch in August. The level is still one of the highest we have seen over the past decade (July was the peak) and it beat expectations. New order growth eased just a touch and activity and hiring moderated, but order books still fattened. Basically, activity was very strong but not quite as robust as it was in July. That is hardly a cause for concern.

The turmoil in China has raised questions whether our export growth can be sustained. Well, so far, so good. Exports increased again in July, helping create a solid decline in the trade deficit. Almost all major categories posted gains, led by a solid rise in vehicle sales. Foreign demand for our food, capital goods and industrial supplies also help up nicely. Our imports were down, though. That is normally not a good sign as it raises questions about domestic demand. However, most of the drop came from 15% declines in pharmaceuticals and cell phones. Such a huge change in just one month was likely due to special factors, not economic trends. Imports of capital goods, industrial supplies and even consumer goods excluding those two industries were up. There was also a large fall in food imports, but it is doubtful people suddenly went on a diet because the economy weakened. Meanwhile, we bought lots of foreign vehicles, a sign of economic strength. Adjusting for inflation, the trade deficit started off the quarter down so maybe it will not restrain growth much this quarter.

Two other releases point to continued tight labor market conditions. Weekly jobless claims popped a bit last week, but the level is still in the strong job growth territory. Challenger, Gray and Christmas reported that August layoff announcements fell sharply from the defense cutback elevated July level. So far this year, layoff notices are up 31%. However, the entire rise could be assigned to increases in defense and the oil sector, which are special situations.

MARKETS AND FED POLICY IMPLICATIONS: The economic data and the stock markets are diverging, demonstrating once again that we shouldn’t confuse Wall Street with the economy. The U.S. remains the rock upon which world growth can build on and the exchange rate race to the bottom that is being led by the Chinese shows how everyone else recognizes that reality. But tomorrow is another day and another jobs report, so the best thing for investors to do is show some patience. Maybe, just maybe, the employment data will provide the clarity that the Fed members seem unable to communicate.

August ADP Jobs Estimate, Help Wanted Online and Revised 2nd Quarter Productivity

KEY DATA: ADP: +190,000/ HWOL: +34,200/ Productivity: +3.3%; Unit Labor Costs: -1.4%

IN A NUTSHELL: “Businesses are still hiring, but it is not clear if Friday’s jobs report will give the Fed either an “all-clear” or a “let’s go slow” signal.”

WHAT IT MEANS: Yesterday, I commented that I hoped the jobs report would be strong enough that the Fed would have all the cover it needed to start raising rates. The one thing I didn’t want was a mezza mezza report that left everyone in Neverland. Well, if you look at today’s employment related data, it is likely Friday’s employment report could be not too hot or not too cold, which would make it not just right. ADP’s monthly estimate of private sector August job gains was a little less than expected. It points to a decent, but not great report. Ugh! Construction firms ramped up but manufacturers added positions at a more moderate pace. Looking across company size, there was decent gain in small and mid-size companies but large firms didn’t hold up their end of the bargain. The 500,000 to 1,000,000 employee group continues to disappoint. It is the only one of the major size divisions that hasn’t regained all the jobs lost to the Great Recession. I guess that is not the sweet spot to be in, but I don’t know why.

Looking forward, the Conference Board reported a decent but not great rise in the number of online help wanted ads. After cratering in June, there has been a steady rebound, but online ads are still below the May total. Taken together, the ADP and Conference Board’s reports show an economy that is adding jobs at a pace similar to what we have seen for most of this year.

Business productivity soared in the second quarter and labor costs declined sharply. The huge upward revision to second quarter GDP drove the improvement from the initial estimates, which showed rising labor costs. But these data are very volatile and looking at the change from second quarter 2014, productivity remains weak while labor costs are rising.

MARKETS AND FED POLICY IMPLICATIONS: Today’s reports really didn’t provide either Fed members or analysts with any reason to change their thinking on a September rate hike. Friday will come soon enough but right now, it doesn’t look like Fridays jobs numbers will be a game-changer. The numbers may have to be viewed with some caution, as the late Labor Day weekend could influence the seasonal adjustments. Investors may have to wander in the wasteland created by Fed bickering and dithering. The members are struggling with the communication process so I have a suggestion: Make the change in October when there is no press conference and no chance of further confusing everyone. Just kidding – I think. As for the equity markets, was anyone aware of how far the Shanghai index rose? It was up by over 130% in nine months. Even with the recent collapse in prices, it is still up 40% over the year. Should we be worried about a market that has posted a 40% gain in a year or should we have been screaming there was a bubble that had to burst when prices skyrocketed? I like to talk about efficient markets being irrational. That is a case in point. Keep that in mind as you watch your investments bounce around like yo-yos.

August Supply Managers’ Manufacturing Index and July Construction and Home Prices

KEY DATA: ISM (Manufacturing): -1.6 points; Orders: -4.8 points/ Construction: +0.7%; Private: +1.3%/ Home Prices (monthly): 1.7%; Year-over-Year: +6.9%

IN A NUTSHELL: “A deceleration in the manufacturing sector points to slower growth in the third quarter even as housing, construction and vehicle sales remain strong.”

WHAT IT MEANS: The economy’s yin and yang can be clearly seen in today’s data. On the dark side, the Institute for Supply Management reported that manufacturing activity continued to moderate in August. Growth continued, but it wasn’t particularly fast. What concerned me the most was the sharp deceleration in orders. The index hit its lowest reading in over two years. Export demand continues to fade as well, highlighting the problems created by a strong dollar and questionable Chinese growth. Hiring also moderated, but that component has not been really strong for a while. About the only good news in the report was that order books thinned at a slower pace. However, backlogs continued to drop.

While manufacturing seems to be having issues, other portions of the economy are still strong. Construction boomed in July on top of a robust June gain. Both private residential and nonresidential building activity boomed during the summer. Indeed, there were increases in almost every sector, interestingly, including manufacturing. Since July 2014, private sector construction was up nearly 17%.

The sharp rise in residential construction is being matched by strong increases in home prices. CoreLogic reported a robust gain in July not just over the month but also since July 2014. Price gains are once again accelerating, a sure sign of housing market strength.

MARKETS AND FED POLICY IMPLICATIONS: Investors are trying to make some sense of the Chinese economic data but until we have confidence that the data are anything more than trend indicators, we will not know how hard a slowdown China is facing. Hopefully, investors will now recognize what most of us have known but been unwilling to admit: The Chinese data are questionable given the difficulty to collect data accurately in a country that large and underdeveloped and the political needs of the government. So take anything that comes out with a bucketful of salt. Uncertainty about data for the second largest economy in the world cannot be good for the markets. Yet the U.S. economy continues to move forward. Manufacturing is slowing, but domestic demand remains strong. Indeed, it looks like August vehicle sales pace could come in at a better than expect 17.4 million sales pace. With families buying houses as well, we should see an upturn in the demand for manufacturing goods that go into building those products. The U.S. economy can sustain a solid growth rate unless the situation in Asia is a lot worse than expected. Investors need to separate the international companies from the domestic ones. And the Fed has to recognize that stock price changes and the domestic economy are not one in the same. Unlike the 1990s, when irrational exuberance reigned, households are not reacting rapidly to changes in wealth. They know better, sadly. Friday we get the jobs report and hopefully it is clear-cut. We need something that sets the tone and I am hoping for an unambiguously strong one so the Fed has cover to raise rates. I believe they should do that right away.

July Consumer Spending and Income and August Consumer Sentiment

KEY DATA: Consumption: +0.3%; Disposable Income: +0.5%; Inflation: 0.1%/ Sentiment: -1.2 points

IN A NUTSHELL: “Consumers continue to spend and inflation continues to be well contained; so what else is new?”

WHAT IT MEANS: The more data we get, the more we learn what we already know: The U.S. economy is in good shape but inflation remains below the Fed’s desired target rate. In other words, the Fed’s conundrum continues unabated. Household spending rose decently in July, even when you adjust it for inflation. We knew the gain would be solid since vehicle sales rebounded from a June slump. Inflation-adjusted consumption of nondurables and services improved modestly. The key services component, which constitutes about 45% of the entire economy, is up by a very good 2.8% over the year, adjusting for inflation. Consumers are not just out there borrowing money to purchase big-ticket items, they are buying everything. Can they keep it up? Yes! Income grew strongly in July as wage and salary gains improved. It appears that worker compensation is accelerating. That is critical to maintaining a near-3% growth rate. If household incomes keep ramping up, the strong spending pace we have been seeing should be maintained since balance sheets are in much better shape. While the Fed members should feel good about the economy, they will likely remain uneasy, queasy about inflation. Prices rose modestly, both overall and excluding food and energy. Over the year, the inflation rate has decelerated a touch recently. That is not a trend the FOMC wants to see.

One question being raised is whether the stock market wild ride will harm consumer confidence and spending. For now, the answer is unclear. The University of Michigan’s Consumer Sentiment Index eased a touch in August. The stock market volatility period constituted only a small portion of the survey period. Confidence changes that result from short-term market price volatility don’t necessarily lead to alterations in spending patterns. The September Mid-month sentiment snapshot comes out before the next FOMC meeting, and that will matter more.

MARKETS AND FED POLICY IMPLICATIONS: It is getting tiresome constantly talking about what the Fed will or will not do in September or even this year. That alone says the Fed has messed up its communications policy really badly. The Committee keeps trying to provide better information but the more they change the strategy, the more they don’t clarify things. Saying they are data dependent sounds good, but when analysts can change their outlook dramatically on a couple of days of stock market volatility (one large institution went from September to next March!), that doesn’t tell me the Fed’s signaling system is getting the job done. Waiting for Godot can be tiresome and I really don’t enjoy sitting around saying basically the same thing over and over again. Which I continue to do. Unfortunately, my writing will never be compared to Samuel Beckett’s. In any event, repeating what I keep saying, the U.S. economy is in very good shape, inflation is low and the Fed is perplexed – or afraid of making a mistake – or whatever. September 17th cannot come soon enough for me.

July Consumer Price Index and Real Earnings

KEY DATA: CPI: +0.1%; Excluding Food and Energy: +0.1%/ Real Hourly Earnings (Monthly): 0.1%; Real Weekly Earnings (Monthly): +0.4%

IN A NUTSHELL: “The Fed has to decide if modest inflation is good enough.”

WHAT IT MEANS: The slow water torture the Fed is putting us through continues unabated and it would be nice if the economic data helped stop the pain. No chance. The Fed has a dual mandate and while the economy is good enough to raise rates, inflation remains well below target levels. Today’s July Consumer Price Index report does nothing to change that picture. Prices rose minimally and that included energy and food. That is, you can exclude energy or food and energy, and there was just a modest rise in consumer costs. Interestingly, the Bureau of Labor Statistic has gasoline prices rising solidly in July but the Energy Information Agency has gasoline costs down a touch. What the government’s left hand is posting has little to do what the right hand is presenting. Regardless, there remains a clear demarcation between goods inflation and services inflation. Since July 2014, commodity prices, which are about 38% of the index, were down 3%. Energy commodity costs dropped over 22% over the year. Meanwhile, the services component, the larger portion of the index, was up 2.2%. Shelter, especially rent, is rising sharply. As for the specific categories, medical care costs, both services and commodities, is rising faster than most other areas. Food price pressures are increasing and it is not just eggs. New vehicle prices are up but used are down. The high demand for new vehicles is putting a lot of used vehicles on the market. Clothing prices rose in July, but that was probably an aberration as they are down over the year. Basically, consumer price pressures exist, but they are not great and are concentrated in services, where there is less volatility than in the commodities segment.

With prices up modestly but hourly and weekly earnings up more solidly, real earnings rose. Workers are seeing gains in pay, but more of it is coming from longer hours worked rather than higher hourly wages.

MARKETS AND FED POLICY IMPLICATIONS: The battle between the Fed’s growth mandate and the inflation mandate continues unabated. Under normal circumstances, the Fed would simply wait until inflation starts approaching its target rate before raising rates. But this is not a normal situation. Rates are well below “normal” levels and it is no longer clear that the low level of rates is doing more good than harm. The argument du jour against a rate hike, which is likely to be just ¼ percentage point, is that it would cause the dollar to skyrocket, killing tourism and wrecking the junk bond market. Huh? I guess since people have thrown just about everything else against the wall, those worried that a Fed mini-move would cause the world as we know it to collapse, have to come up with even more bizarre rationalizations to argue against a rate hike. All these excuses are the best arguments to raise rates. Perceptions of what are high rates have been so totally warped that the Fed is playing catch up. It’s time to act, if only to bring some semblance of normalcy back into the fixed income markets.

July Housing Starts and Permits

KEY DATA: Starts: +0.2%; 1-Family: +12.8%; Multi-Family: -17%; Permits: -16.3%; 1-Family: -1.9%; Multi-Family: -31.8%

IN A NUTSHELL: “Housing continues to steadily improve, reinforcing the view that the economy is in good shape.”

WHAT IT MEANS: The housing market is a leading light of the economy and it looks like that will be the case for a while. Home construction edged up in July to a level not seen since the fall of 2007. Single-family activity also returned to late 2007 levels. While those may not be quite where we would like them to be, the steady progress in a sign that this housing recovery is not being hyped by artificial factors. There was a major fall-off in multi-family construction but this is a very volatile segment of the market. Looking forward, the rise in starts should be sustained, though don’t look for a huge increase. Permit requests tanked in July but that came after a spike in June. Over the past three months, permit requests have been running over 6% faster than starts, so even with the July decline in permit purchases, builders have to get going if they are to use up all the permits they have stashed away.

Adding to the expectation that housing will add to growth in the future was yesterday’s report by the National Association of Homebuilders that their index of builder optimism hit its highest level since November 2005. Builders are confident about the future and they are backing that up by actually doing what they are supposed to do: Build!

MARKETS AND FED POLICY IMPLICATIONS: For the most part, the recent data have been pointing to solid growth this quarter. Yes, yesterday’s Empire State Manufacturing Index did tank, but it is hard to understand how confidence could rise but activity collapse. We have had some bizarre moves in the confidence reports lately and I am not sure why. Consumer optimism tanked in July, if you believe the Conference Board, but why people suddenly started feeling sullen is anyone’s guess. Some regional manufacturing indices fell, yet industrial production surged. So you tell me what is going on with that data and we will both know. My take is the economy is moving forward solidly. We may not get two growth rates above 4% as we did last year, but second half growth should exceed 3%. That would mean solid job gains and decline in the unemployment to 5% or less by the end of the year. In other words, the economic numbers should support a Fed rate hike. The FOMC is not likely to change its timing because of the strong dollar. Yes, every company that reports weak earnings is blaming the dollar, but that is a foreign earnings issue, not a domestic economic problem. There is no reason to change policy because of a currency translation issue. Once we get the August jobs report, the Fed members will have to get serious with their signals about a September rate hike. As for the markets, oil prices and the dollar, rather than fundamental economic data, seem to be driving daily action. But over the remainder of the year, investors should not fear the Fed. A rate hike would signal that even this group of worrywarts thinks the economy is in good shape and that would send a strong, positive message. But as I like to say, markets are efficient but not necessarily rational.

July Industrial Production and Producer Prices

KEY DATA: IP: +0.6%; Manufacturing: +0.8%/ PPI: +0.2%; Goods: -0.1%; Services: +0.4%; Excluding Energy: +0.3%

IN A NUTSHELL: “With the vehicle makers leading the way, the manufacturing sector is ramping up even as costs are moderating.”

WHAT IT MEANS: Despite some decent consumer spending, the manufacturing sector had been lagging. Not anymore. Industrial production soared in July as the vehicle sector decided to start ramping up output to meet the high sales pace. Assembly rates jumped by nearly 16%, to its highest level in over 35 years. But it wasn’t just automakers who saw the need to increase output: Eight of the eleven durable goods sectors and six of the eight nondurables posted gains. Whether it was business equipment, consumer goods, construction supplies or high tech products, the need to run the factory longer and faster was seen. The really weak area, not surprisingly, was petroleum. Clothing production also took a big hit and with the dollar rising, that could continue to be a problem area. Capacity utilization rose sharply, but it is not high by any means.

On the wholesale cost side, prices rose, but less than they did in May and June. The restraining factor was energy and the decline in costs is likely to accelerate given the recent drop in crude prices. Excluding energy, prices rose moderately and taking out food, costs also ticked up, though modestly. Still, even on the goods side, finished consumer goods less food and energy were up a solid 2.9% over the year. That is important to note because the major portion of the cost pressures, to what extent they exist, is coming from services. We forget about this component but it is nearly two-thirds of producer costs. Services expenses rose solidly and no major sector posted a decline. Trade, transportation, warehousing and government services all posted gains. This portion of the economy should provide a base for inflation.

MARKETS AND FED POLICY IMPLICATIONS: It would be nice if the two components of the Fed’s dual mandate were behaving consistently, but that is not happening. If you just look at the domestic economy, everything is hunky-dory (that’s a technical economic term). But on the inflation front, the falling price of petroleum and the rising value of the dollar are putting downward pressure on prices. What will the FOMC consider most important? If we look at their words, the Fed members view low inflation as a medium term issue, not an immediate problem. Thus, they are saying they can be patient, as long as expectations remain stable, which they are. Consequently, we should continue to focus on the real economy and the data imply it is strong enough to absorb a rate hike. Meanwhile, back in the markets, the wild ride is likely to continue until some semblance of order returns to the oil and currency markets. With traders worried about the issue of the day and the earnings number of moment, a longer-term viewpoint of stocks based on economic trends is not likely to dominate behavior.