Economic Hat Trick

Three new key bits of economic data were released this morning, each of which support the broad-based strength of the American economy.

Inflation (CPI) in 2006:  2.5% (the tamest in 3 years)
Housing starts:  4.5% higher than previous month
Weekly jobless claims:  290,000, down 8,000 from previous week

Chairman Bernanke will testify before the Senate Budget Committee today, so the markets will be wait to hang on his various turns of phrase, but in general, the "soft landing" needle the Fed's trying to thread is coming into sharper focus.  Inflation is still higher than they'd like, but it appears to be under control and easing, thanks in part to their long rate-hiking campaign which kept the economy from running too hot.  At the same time, an economic recession (sometimes inevitable, following such a campaign) appears less likely with each new strong jobs report.  Today's report did show job losses in housing and manufacturing, but the net drop in jobless claims suggests all those jobs and more are being replaced elsewhere in the economy.  Finally, the uptick in housing activity could mean the significant drag the housing market put on GDP growth in 2006 will moderate.

The good news does, as usual, tend to lessen the odds that the Fed will cut rates this year (the market is now pricing in a slight bias toward a rate hike, not a cut, being the next move), which can make the equity markets grumpy.

But don't let their ambivalence keep you from basking in the good news.  You gotta rise above it. You gotta harness in the good energy, block out the bad. Harness energy, block bad. Feel the flow. Feel it. It's circular. It's like a carousel. You pay the quarter, you get on the horse. It goes up and down and around. Circular. Circle. With the music. The flow... all good things.

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Update:  Bernanke did play the boogeyman to some degree in his testimony.  Not about whether the current business cycle is likely to tilt either toward inflation or recession, but about the need for Congress to sew up the holes in its pockets.

Left unchecked, the costs of so-called entitlement programs, such as Social Security and Medicare, are set to soar as increasing numbers of the baby boom generation retire.

"Dealing with the resulting fiscal strains will pose difficult choices for the Congress, the administration, and the American people," Bernanke said.

"However, if early and meaningful action is not taken, the U.S. economy could be seriously weakened, with future generations bearing much of the cost," he added.