Interview: Bank of Tokyo-Mitsubishi---Beeson-Zentner, Ellen---Economist
we may be entering a period in which policy changes are even more dependent than they have been on readings on the economy with all the uncertainty such readings can bring.
>> if productivity growth can stay near 3%, monetary policy can accommodate relatively faster growth and lower levels of unemployment without igniting inflation.
>> comments from two fed governors on the economy today. our next guest says if anyone thinks today’s lower-than-expected jobs numbers mean the fed will consider pausing sooner rather than later, they will be sadly mistaken. ellen zentner, u.s. economist with bank of tokyo-mitsubishi, joins us in the studio. equities did rise on the heels of the december jobs report. sentiment hopeful, the fed remains close to neutrality. do you agree with the market ‘s reaction to the jobs report, that the fed is close to neutrality?
>> i think people are going off of the fed empties we saw recently indicating there are probably only a few more rising up their sleeve, so to speak. but given that, even, it would still equate to our forecasts calling that the fed would raise rates to 5% by midyear and whether they would pause after that would be very data dependent, as indicated in the minutes also. but anyone who believes the fed only has maybe one or two hikes to go would be mistaken at this point given the great momentum in the economy right now and the fact that we do believe there are pipeline inflation pressures that have yet to come forward showing up in core consumer prices in future months.
>> tell me more about why you are seeing concerns about inflation?
>> if you look at import prices, where inflation pressures begin, if you look at those, less oil, take that out of the game, and import prices have been rising strongly. then you look at wholesale inflation, where those prices feed into, if you look at core intermediate goods, that has been rising strongly over the past few months of the those have not come forward yet into consumer price inflation into the core component that the fed does look at. we believe the .2% increase we saw in november. will repeat itself in december, probably bring the year-over-year rate to 2.3%. that will be a concern to the fed going forward and they’ll be cautious as to whether they should stop in that environment.
>> job growth at this pace, is that inflationary to you or wage figures, do you see that at all as playing into the inflation picture?
>> i think what we will be looking at going forward and what many people will look at is that weekly earnings. it rose more than expected in today’s report. that was tempered somewhat by the downward revision to last month’s report but at the same time as the unemployment rate continues to go down and we reach full employment, which, again, is as elusive a concept as a neutral fed funds rate, but as we reach what the fed believes is full employment, that also adds upward inflation pressures.
>> you really think that the neutral rate is as elusive, as you say, as what full employment might be described as?
>> yes, these are all concements, same with the neutral fed funds rate, no one knows exactly where that is. we have a broad range for it. it’s the same for full employment which in the past, historically, the fed has considered full employment 4.6% unemployment and they look at capacity utilization rate which has been rising this year at 82.and generally between 82% and 84%, the fed considers that full capacity.
>> how much job growth can the economy sustain before it’s inflationary.
>> we will continue to have good jobs growth.
>> two million a year?
>> we can get that. in the past economic expansion which lasted 10 years from 1991 to 2001, we had at least five years in a row with over two million jobs created so there’s no reason why that can’t continue. businesses are sittinggating on a―sitting on a lot of cash. business confidence is improving and they’re more apt to hire an employee.
>> looking at the economic calendar next week, the trade balance reading, another producer price index coming out. which will you be most focused on?
>> one thing we’ll focus on is the trade deficit. i’ve seen some of the consensus forecasts calling for a slight narrowing. i think that’s over zealous because some expect that because we had an upward bounce that was unexpected last month, they expect the deficit to improve. we don’t expect the deficit to improve in november and we think the numbers will show that next week. the fundamentals are there that we’re still a strongly import-led economy and we just don’t believe that there’s going to be any significant improvement in the trade deficit any time soon. also, with the producer price index, of course, that’s going to be closely watched. we don’t expect any surprise in the core reading―i’m sorry, i was mixing that with the consumer price index which we haven’t talked about yet. the producer price index, i do expect a large bump up, .3% in the core p.p.i., returning to the pipeline pressures we’ve seen in wholesale prices in core and intermediate goods in the last three months.
>> thank you very much for coming in, ellen zentner, macro economist with bank of tokyo-mitsubishi. wall street analysts raised their price target on google this week to $500, $600, and now $2,000 a share. but our next guest is much more conservative on his outlook for google. we’ll speak with him after a quick break.
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Listen Market briefing --- Lori (slow)
NYSE --- Julie (slow)
Nasdaq --- Robert (slow)
Job report --- June (slow)
jobs in december, capping the second straight year american employers added more than two million workers. december gains followed figures showing 71,000 more jobs than first reported for november and october. the unemployment rate fell to 4.9% and labor costs rose. in this hour, bloomberg’s june grasso with more details on today’s jobs number. bank of tokyo-mitsubishi economist ellen zentner joins us with what the fed may do with the data. and allan dodds frank with the fallout. the bush administration makes a full court press to tout the economy.
>> we have news that the economy added more than 400,000 jobs in the last two months. [applause] the unemployment rate is down to 4.9%. americans are going to work, this economy is strong and we intend to keep it that way.
>> stocks rallied on the back of today’s news. economic news. closing numbers today, dow well above a four-year high, which was march of 2005, gaining 77 points to close within reach of the 11,000 mark. dow leaders today, i.b.m., exxon-mobil and caterpillar. the s&p 500 bouyed by energy shares gains 11 points today to close at 1285 and the nasdaq composite index rose 28 points to close at 2305. the dow and s&p did rise to 4 ½ year highs today propelled by energy stocks. for more on today’s trading action, here’s a report filed by julie hyman at the big board.
>> stocks rose for a fourth straight session, having a good start to the year in 2006, in fact, the best start to a year since 2003 for the s&p 500. it was higher by 3% this week in the four sessions where we saw the up trend. in addition, a note from michael panzer in saying a four-day winning stroke at the start of the year has been bullish six times out of six and has only happened six times since 1950. the dow also having a good week, rising 2.3%. energy propelled gains today and for the week. exxon-mobil, chevron, conocophillips, schlumberger, all higher today. schlumberger rising to a record as did an index of oil services stocks. the philadelphia oil service sector index up about 3.5%. another group that has continued its rally really from last year into this year is the amex gold bugs index, gold mining companies, up almost 3%, also trading at a record including the stocks within that index, kinross, goldfields, meridian and harmony with significant gains. the s&p 400 midcap, the russell 2000, small cap stocks, the morgan stanley cyclicals and amex index of broker/dealers, all rising to records in today’s session. a broader group, the s&p 500 financials, significant because in accounts for 20% of the s&p 500 overall. information technology has been faring well today, as well as all week. i.b.m., one example of that, after the company saying it was cutting back its pension benefits in an effort to cut costs and also if you look at a wider index of information technology, you see that’s fared well in today’s session, as well, up better than 1.5%. speaking of technology, electronics retailers came out with their same-store sales. best buy up 8% on that news. circuit city up .66%. i’m julie hyman, bloomberg news at the new york stock exchange.
>> the new year’s rally lifted the nasdaq to a a 4 ½ year high today. robert gray has details on the action from the nasdaq marketsite.
>> friday’s jobs report helped extend the new year’s rally to all four sessions in the new year, lifting the nasdaq composite to its highest level since may of 2001. i heard from tim smalls at execution l.l.c. and he said after the jobs report, the focus is clearly on tech, the job data gives credence to the thought of one more and done for the fed, the fed stopping its interest rate increasing campaign after one more increase. the nasdaq up 4.5% for the week, the biggest weekly gain since august 2004. the gains led by technology stocks. semiconductors rising 2% on friday. internets and software stocks also with 2% gains. hardware stocks up 1.7% on friday. as for the s.o.x., at its highest level since march 2004 and biggest weekly gain since halloween of 2003, during the week. xilinx pacing gains there, xilinx raising its own forecasts for sales sequentially saying they could be as much as 50% higher than the previous forecast released in december. internet stocks rising on the day in friday’s session. google shares at a record. goldman sachs out with notes on google and yahoo, reiterating outperform on both stocks with a $500 price target on google and $50 target for yahoo. we saw a different story for software company microsoft, world’s largest software maker, downgraded to neutral from outperform at credit suisse first boston. csfb, meanwhile, upgrading red hat and b.e.a. systems to outperform for both of those stocks and those shares gaining on the session. we have a change to the nasdaq 100 as of the close on friday, amylin pharmaceuticals becoming a member, joining the nasdaq 100, replacing m.c.i., acquired by verizon, that deal completed on friday. at the nasdaq, i’m robert gray.
>> and let’s get more, now, on today’s jobs report. the u.s. economy added more than 100,000 jobs in december. 2005, second straight year american employers added more than two million workers. june grasso has more on the numbers and their implications.
>> the u.s. added jobs each month in 2005, overcoming hurricanes and surging energy prices. 108,000 jobs were added in december following revised figures showing 71,000 more jobs than first reported for november. but the december numbers were lower than the 200,000 jobs economists were expecting. economist james shugg says the numbers missed the mark because of poor weather in the first half of the month.
>> i think the december number was held down by that one-off weather factor. the underlying story is clearly stronger than 100,000 a month and if you look at the average over november and december, that’s 200,000 a month soening we still have pretty robust jobs numbers to come for the u.s. economy through the first half of 2006.
>> the unemployment rate fell .1 of a point to 4.9% last month. economists forecast no change there. the rate declined .5% last year, the biggest one-year decline since 1997. one surprise in the jobs report, an 18,000 increase in factory jobs in december. those payrolls were expected to stay flat. the average hourly wage rose .3% last month and 3.1% last year, the biggest increase since 2002. the drop in the unemployment rate and rising wages may add to federal reserve concerns that an improving job market could spark inflation.
>> the wage aspects, the serious question for the fed, i think they’re going to look beyond some of the swings in the monthly nonfarm job growth and really ask this question of whether or not this labor market is tight enough to produce real wage and salary pressures, which would clearly be part of the inflation story.
>> the fed is forecast to raise its benchmark interest rate for a 14th straight time on january therein to 4.5%. back to you, lori.
>> let’s go ahead and check treasuries and the dollar on the heels of today’s jobs data -- shares of gold mining companies surged, including an 18-year high for newmont mining. signs fuel demand is picking up worldwide, the second straight weekly gain for crude oil futures. nymex crude oil futures for february delivery settled at $64.21 a barrel. natural gas futures rebounding off the 15% decline over the last three sessions. combination of three factors, record fuel demand, tight gasoline supplies and new money flowing into the market put the bulls in the drivers seat. the energy department says american consumption of gasoline, heating oil and other refined fuels reached an all-time high in december. there are now signs that economic growth will push fuel demand higher worldwide. alaron trading’s phil flynn says momentum has shifted to bulls since gasoline supplies are so tight. last month, americans guzzled gas at the highest rate in 15 years. many traders at nymex say fund managers are investing new money in the market after reducing positions the end of last year. paramount options ray carbone says fresh buyers give fresh legs to the rally. in the latest bloomberg survey, 53% of analysts surveyed expect oil prices to rise next week. 32% expect prices to job. more jobs added in december, not, though, as many as economists expected. what hints will the fed take from the numbers? our next guest explains. e.
