Economy Cleared for Landing

For several months, we've seen a bizarrely low unemployment rate, which, combined with fast GDP growth and rising energy prices, has kept the Fed firmly on a tightening campaign, raising rates 17 consecutive times.  Likewise, for months, every piece of economic data to come out has seemed to weigh most heavily on the market's presumption of what it would mean for future Fed moves.  Unexpected good news would tank stocks and surprisingly bad news would stir rallies.

Today smells a little like the latter.  The Labor Department's monthly Employment Situation report shows that only 113,000 jobs were created in July, down from 124,000 in June and less than the 145,000 eocnomists were expecting.  Our crazy low unemployment notched up from 4.6% to 4.8% (still lower than any non-tech bubble year since 1969; even with 3 years of bubble time under his watch, unemployment under Clinton averaged 5.2%).

This all spells wonderful news to those who expect Chairman Bernanke to be mulling a pause at the August Fed meeting, to try to guide the economy down from its blistering early 2006 growth to the fabled "soft landing".  What's been in doubt was weather the data would give him the credibility to do so.  Last week's GDP report showing easing growth was part of the equation.   Today, the other shoe appears to have dropped.

The equity markets, not surprisingly, are fired up by the report, led mainly by financials, whose borrowing costs decline when expectations about the path of interest rates likewise decline.

The Federal Open Market Committee will meet next Tuesday to decide whether it will indeed pause for the first time in more than three years.