By Evelina M. Tainer, Chief Economist, Econoday
September 5, 2003

Economic news for July and August was generally favorable as both ISM surveys continued their sharp climb, motor vehicle sales surged, factory orders rose and nonfarm productivity grew at a healthy rate. But therein lies the problem with the job market: employers, relying on strong productivity growth, don't need to hire new workers as long as demand is moderate. While economic expansion has improved in the past couple of months, the growth is still sub par for an economic recovery. The pace of economic activity is insufficient to spur employment to healthier levels.

Several Fed officials noted this week that economic growth was indeed improving. They emphasized that the Fed likes growth and is not fearful of inflationary pressures these days. The Fedspeak is likely aimed at the bond market where signs of economic growth tend to lead to rising interest rates. Fed officials want bond investors to believe them when they say that monetary policy will probably be unchanged for the next six months to prevent interest rates from rising further. After all, rapidly rising rates could easily stall the recovery in its tracks.