(August 25 – 11:05) – BMO Nesbitt Burns says that the balance of evidence shows that the Fed has done its job slowing the economy.
BMO Nesbitt Burns senior economist Dr. Russell Sheldon says that growth in key sectors has slowed, the Fed is finished, and is now in a holding pattern. “We believe the Fed has probably succeeded in slowing growth. The evidence is to be found in measures of activity for the economy’s two most cyclical sectors — construction and manufacturing.”
Sheldon says that construction peaked in March, with the effect of Fed tightening and the huge pipeline of new supply combining to slow growth. Manufacturing is also demonstrating a cyclical slowing, with no growth in factory production, excluding high tech, over the past four months.
More than 50% of U.S. industries reported reduced output in June andJuly. And new orders have dropped sharply, apart from high tech.
Sheldon notes that inflation in non-energy manufactured goods prices is near zero. Although high tech production is strong and will remain so, “the bulk of U.S. industry is flat as a pancake – just where the Fed wants it at this juncture.” Sheldon says the bottom line is, “With vulnerable sectors already in slowdown mode, the Fed has done its job. An extended “wait ‘n see” posture lies ahead.”