Bullish on the economy
Interview: National City Corp.---Dekaser, Richard---Economist
>> an increase in consumer spending may set the stage for a bullish report on the u.s. economy tomorrow. the second reading on second quarter growth. economists surveyed by bloomberg news expected upward revision of half a percentage point, an annual rate of 2.9%. faster than the government estimated last month. for the rest of the year economists polled this month are expecting even faster growth, 3.6% this quarter 3.7% in the final three months of the year. further evidence of economic recovery may further sap demand for treasuries in the days ahead.
>> our next guest is bullish on the economy, expecting employment to recover in the next couple of months as growth picks up. richard dekazer, chief economist at national city corporation joins us from cleveland. welcome.
>> good to be here.
>> tomorrow’s big number in terms of impact may not be the g.d.p. report, however. it may be the jobless claims report because there is so much focus on whether the economy is creating jobs right now; krkt?
>> that’s right. there have been a number of important milestones since the war in evaluating the strength of the economy’s pickup. businesses are investing, so that milestone is taking off. we see consumer spending, strenuously. so that’s not on the concern list anylonger. but what’s still there is the labor market. jobs have not been created and i think that’s where all the attention is going. however, i do think there are abundant reasons to expect that’s going to change soon. not only have we seen the four-week moving average on initial claims under 400,000, but we’ve seen an improfit pment in help want advertising, and even more important than either of those, is we’ve seen a tre men’s surge in hiring contemporary workers, in excess of 120,000 over the past three months. historically that leads to permanent positions within a short period of time because the temps are a hedge against uncertainty and they are not cheap. if there is greater confidence in the staying power of the recovery you should see that widen out to other sectors of the economy.
>> consensus for claims tomorrow is 390,000, but you are below that, right?
>> that’s right. though for reasons that might not really reflect directly on the labor market, i’m down close to the 360,000, 370,000, and i believe the blackout is going to have an influence. i haven’t seen too many analysts factoring that in, but with the closure not just of businesses but also government office, at least in the affected areas, i’m assuming that’s going to take a toll on the people’s ability to get in and file claims. >> claims are of people unemployed. we are talking about the need for the economy 0 create jobs. if claims are going down, how much of a direct relationship is that going to give us when we get to the employment report on september 5th?
>> well, it has a very direct relationship, and especially at this point in the business cycle. the monthly numbers that we focus on all the time, the monthly changes in payroll and employment represent two things; jobs being created and jobs being lost. at this particular stage of the business cycle, if in fact we are seeing an improvement in demand and hiring, it would be layoffs that were first turned down. firms are going to throttle back on laying workers off to try to get costs under control really before they start doing the% -pother, which is hiring. so we’ve seen that over the past four weeks at least, and that has historically been a pretty reliable indicator.
>> the other number tomorrow which we talked about coming into our talk with you is the g.d.p. revision. this time it might get more attention than usual p, people say, because it’s going to be a little bigger revision and show the economy is going fast are than people on wall street and other places have been thinking.
>> that’s right. the first revision is based on a few guesses and information gets revised. the two big areas that should show up with revisions are consumer spending and business investment as evidenced by recent retail sales spending reports, and business orders and spending for capital goods, nondefense capital goods in particular. so it’s important to put this in context. the number should be somewhere between 2.6% and 3%. this was a number that before it was first releesed the analyst community had pegged at 1.4% on the consensus basis, so quite a considerable step up.
>> that sets us up pretty well going into this quarter, and growth is going to be much higher according to consensus estimates.
>> yes. actually you mentioned the consensus of 3.6%. i’m over 5%. i think 5.5%. it’s very conceivable we could even hit a 6% number. the monthly pattern over the course of the second quarter and into the third has been very very brisk, and we are seeing tremendous results from the elements of the tax package enacted earlier this year. the refund checks have been mailed, and by all accounts, consumers, again in the month of august, are spend. auto sales look to come in very strong. we are getting reports from retailers that they, too, are seeing a good month, on top of the already logged excellent july.
>> that should continue into the fourth quarter, i would imagine.
>> well, i’m not sure if it’s going to continue quite at that pace. this really is a splurge. the refund checks themselves amount to at least $15 billion. consumers spend about half of that, and after that’s been absorbed and spent, i don’t think that they are going to keep it up at quite the same pace. but, we are seeing the bataan being handed to the business community. that is to say as consumers have been accounting for the economy’s strength thus far, it’s the much awaited contribution from the business sector is i think still coming into play.
>> we have to leave it there. thank you very much, richard dekaser. stay with us. we’ll talk about the u.s. rally in semiconductor shares.
