Kudlow and the Jobs Report

The May jobs report just came in at +78,000. While manufacturing had a slight decline, education/health services and construction were the big gainers. As you might expect, this was viewed as a good number by the folks at CNBC - Larry Kudlow was crowing about non-inflationary growth, a Goldilocks economy, and how the Fed has so marvelously done their job of stimulating growth and fighting inflation.

Let's go to Larry's latest articles over at the National Review for the supporting analysis of this now ever-present non-inflationary growth theme.

In More Non-Inflationary Prosperity, we learn that, despite what you may find at the grocery store, at the gas pump, or at your local housing development, there really is very little inflation:

Core inflation is still tame, rising at 1.6 percent over the past year, about the same as the second half of last year and actually slower than in 2002. The gold price, at $418, is consistent with less-than 2 percent underlying inflation.

As we all know, core inflation doesn't count food or gas - what it does count is cheap imported goods from Asia and housing rental costs that are stable, now that anyone who can fog a mirror can buy a house. So, while core inflation may be 1.6 percent, this really has very little to do with what people actually pay for things that don't come from China.


Apparently, the plan is that as long as people are "house rich", they won't notice food and gas prices - oil just doesn't seem to want to go down, does it?

The Federal Reserve has restrained inflation expectations, and as a result long rates have descended even while short rates have moved higher. That’s a nice piece of work.

Wow! Where do you start with this one? Long rates are the "conundrum", remember? So, a conundrum is now a nice piece of work? Hey Al, nice conundrum!

Actually, we are looking at non-inflationary prosperity for several more years to come. This is a good stock market scenario where the broad indices still look to be 20 to 25 percent undervalued. In policy terms the Fed has done its job by restraining inflation and President Bush’s supply-side tax cuts have reignited economic growth. The results are unmistakably positive.

Why stop at several more years? And why stop at 20 to 25 percent undervalued? Shoot for the stars! If you read this paragraph over and over, it just sounds loonier and loonier.

In Striking Out Inflation, after ogling the new Fed Head in Dallas, and falling all over himself in praising the new Fed Head's brilliant baseball analogy, Larry gets back to the non-inflationary growth theme:

Market price signals are forecasting continued economic expansion with low inflation. Exactly what Greenspan & Co. desire. In effect, the Fed has reigned in the money supply to curb inflation fears, while the supply-side tax cuts put in place two years ago continue to provide economic growth incentives.

Well, not quite - the mortgage backed securities market (whose money doesn't show up in the money supply numbers) is now completely out of control, and the populace is so drunk with home equity "wealth", that the notion of low inflation growth is really a grotesque distortion of the economy as we knew it just a few years ago. But, apparently, if you can point to a positive GDP number, a tame money supply number, and a bogus inflation number, you can declare victory.

It’s likely that Dick Fisher, who’s no gun-slinging hip-shooter, is reflecting a sub rosa buzz inside the Federal Reserve System. The buzz is that the Fed has succeeded in holding down inflation and that the tightening cycle is coming to an end.

Well, we did learn something from Larry here - sub rosa - private - it wasn't a complete waste of time.

It’s too early to expect a formal policy comment to this effect. But it’s clear there’s a considered view within the central bank that economic and inflationary conditions are far better than the predictably dour and declinist mainstream media would have us believe.

Oh no - is there another Federal Reserve victory lap coming?