Interest rates
Interview: J P Morgan---James Glassman---Senior Economist
>> welcome back. after today’s meeting the question is will the fed move interest rates before the end of the year. a lot of people saying know at this point. our next guest is one of them. james glassman, senior economist at j.p. morgan securities joining us from his firm. welcome. good to speak to you once again. very well.
>> you are not surprised by the decision’s of the fed to leave rates where they are. when do you expect the next move.
>> not for a considerable time, as they put it.
>> how long is “considerable?”.
>> well, it depends on how well the economy does. frankly, i think based on what we think is going to happen to the economy which is a pickup in growth to an above trend pace for a while, i would say not sooner than next fall. fall 2004.
>> fall, 2004. so more than a year at this point. you have an expectation that things are going to pick up a lot sooner than that.
>> yes, i think―well, i think we are in the middle of it right now. i think the third quarter is going to prove to be pretty beef i-looks like consumer spending is going to be up 3% to 4%. we’ll see. we’ll get a hint of that tomorrow in retail sales, with the retail sales report. businesses have been caught offguard by the strength in demand this year, and inventories have gotten wiped down. they are already at very low levels. there is a lot of catching up businesses have to do on the inventory side.that will give a lift to the fourth quarter this year. so second half of the year should be in our minds close to 4% growth on average.
>> now, you and your colleague john lip ski have painted an optimistic picture of a 2003 and 2004 economic recovery. what do more fearful economists out there have most wrong in your view.
>> i wouldn’t say any one has it wrong. we all live in glass houses. but the people who are worried the most about the economy worried about the leverage, high level of leverage in the u.s., the very high amount of capital spending that companies are still doing, especially in high tech. they worry that we are still dealing with excesses from the 1990’s and it will take time to work through those. the more pessimistic crowd worries that, ok, yeah, we are get ag boost from all this policy statement, but wait until this fades. the structural problems will keep haunting us. my suspicion is those are a little overdone. i think it’s very telling to me that businesses are investing new amounts in information technology, despite the troubled times we are in. it’s high tech investment spending that’s picking up and leading the revival of business spending. so i think that’s telling you companies know what they are doing. they are doing it because it’s making them more efficient.
>> and all those items bring you to the conclusion that the g.d.p. will grow by 4% in the second half?
>> yeah, i think there is a lot going on internally. there is a lot of pent up demand in the business sector. consumers getting a lot of help from tax cuts. fed policy is on an accommoda accommodative mode.all those things are reinforcing i think to lead the u.s. to an above trend pace for a while. interestingly same trends are beginning to emerge on the global scene. asia, even europe. we are starting to see a simultaneous pickup in activity. i think that’s real telling. that’s going to feed back to us.
>> fed policy is, of course, about economics, economics and its ways about politics, and politics is about jobs out there. is microanalysis of fed policy nothing more than waiting for job creation at this point?
>> you got it. because their mandate that they got a long time ago is to foster maximum sustainable economic performance. what that means is let the economy―get the economy to move to the highest plateau possible without creating an inflation problem. that means get unemployment down to wherever full employment is. who knows where it is. i think the fed right now assumes it’s somewhere around 5%.
>> when are we going to see real sustainable job creation figures in the u.s.?
>> i think we’ll see positive signs post labor day. probably more in the fall we are going to start seeing a real pickup in hiring. the kind of numbers we are used to, 150,000 probably are on the way sometime this fall. and sustainable, above trend employment growth, probably later this year, early into next year.
>> and which sectors of the economy will show the most growth there as far as employment?
>> i suspect all of them. manufacturing will show the most improvement because it’s hemorrhaging the most number of jobs. but with the global economy picking up think they’ll see the greatest turn around. it’s inventory building that’s going to drive some of this business spending so they will benefit. but service sector too i think we’ll see broad based hiring pickup.
>> what could derail your outlook on the economy right now?
>> i think, you know, another major disruption on the geopolitical seen. how many worse could it be? we’ve gone through an awful lot. it looks to me if anything that the outlook on the geopolitical side is becoming more stable, not less stable. so i don’t think there is a whole lot really that could derail this. but, you know, of course, we could have said this a year ago. i was accounting scandals that nobody imagined that took the stock market down. i suppose if that happened again that’s the potential threat. but i don’t think that’s ahead of us.
>> jim glassman, thank you very much.
>> ok. have a good day.
>> senior economist at j.p. morgan securities joining us. the japanese markets are getting ready to reopen for wednesday morning morning. reports that the world’s second largest economy rose more than anticipated sent stocks gaining overseas.
