One on One with Robert Brusca, chief economist at Fact and Opinion Economics
Thursday, May 10, 2007
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SUSIE GHARIB: Our guest this evening thinks the economy is in good shape and that's despite today's discouraging trade numbers and retail sales report. Joining us now Robert Brusca, chief economist at Fact and Opinion Economics. Hi, Bob.
ROBERT BRUSCA, ECONOMIST, FACT AND OPINION ECONOMICS: Hi, Susie. How are you doing?
GHARIB: I'm good, thank you. There was a lot of worried chatter about these economic reports that came out today. Tell us why you are not concerned.
BRUSCA: Well, start with the trade report. Most of that was oil and it was oil prices. So when you look at what happened in real terms, the deterioration was not that great. You look at the non-oil balance, it got bigger by only 1.1 billion on the month. And so it's not going to have such a subtractive effect on GDP. You look at retailing, Erika did a very nice job in talking about the factors. Principally, you're taking a month that doesn't have Easter selling and comparing to one that did. Obviously things are going to be a lot weaker. That's a very unusual comparison. Easter is one of those odd holidays that migrates around the calendar. It's on the lunar calendar. It is not on the calendar that we use. So it is very, very hard to look at year-to-year comparisons. So I really think you have to throw that out of the window. Fortunately we get a real retail sales report tomorrow and we will see what is really going on with retail sales when we get this nonsense out of the way.
GHARIB: Tell me what is your read on the consumer? What is the consumer's appetite for spending in your view?
BRUSCA: Well, we already have seen auto sales. We saw vehicle sales for the month and vehicle sales turned out to be up. Everybody really bad mouthed them. The whisper on the month was that it was going to be so terrible. But when it all said and done they posted numbers and it was an increase. So that's not so bad. Consumer incomes are rising. That's pretty good. The unemployment rate, it picked up but a 4.5 percent, still very low. You look at another number from today, jobless claims, below 300,000, that shows you that the job market continues to be a pretty strong market. You're not getting a lot of layoffs, so I think that you've got these bad signals out there but you've got a lot of good signals too. Sometimes you don't get the balance. The Fed in his statement said the economy was slowing and that this is a change. This is like a welcome mat for the loonies to come out and talk about how weak the economy is and to see everything through a prism of weakness. And I think that is not the right balance for understanding this economy.
GHARIB: All right, the Fed also talked in that statement that you referred to about inflation and about being at elevated levels. We have a -- the wholesale inflation report coming out tomorrow, the producer price index. What will that tell us about inflation?
BRUSCA: Well, it is going to give us a nasty headline again. But we know we don't want to look at the headline. We do want to look at the core. And the core will probably be pretty well behaved. We have had some problems with food prices recently and obviously with oil. We did have export and import prices released today and that report sparked a really incredibly high increase in oil prices in April. We saw that when you take oil out, export and import prices were both still pretty moderate. You look at the trends and they are still moderate. Despite a period where you have accelerating energy prices, we still have decelerating non-oil import prices. That is good news and I think you're going to see that same message in the PPI.
GHARIB: All right, just have a few seconds left, real quick question. You were on the side that the Fed is going to raise rates at some point this year. I want you to tell us why and also what impact that will have on the markets.
BRUSCA: I think inflation is sticky. I don't think it is going to be accelerating right now but I think it's sticky. Wage inflation is beginning to pick up. The job market is tight and I think by the end of the year, the economy is going to be growing. We will get rid of this concern about a weak economy and the Fed's going to have to address the fact that inflation is higher than we want it to be.
GHARIB: We're going to have to leave it there. You didn't answer my market question but we will leave it for next time. Thanks a lot Bob. My guest tonight, Robert Brusca, chief economist at Fact and Opinion Economics.
