Numbers that just plain sing
The risk now, however, is an inflation breakout. Everyone knows what's happened at the gas pump. Commodity prices generally have shown a similar escalation. But so far, unit labor costs, the principal cost of doing business, have been declining, so it looks unlikely that overall inflation will accelerate. For unit labor costs to rise, labor demand will have to strengthen substantially over several quarters. The inflection point for inflation is not here for conditions to provoke a drastic change in Federal Reserve policy at least for several quarters.
We are on a trajectory toward extraordinary growth in the second half of 2004 that will beget stronger job and income growth, stronger retail spending, and accelerating demand at a time when businesses have cut costs, raising profit margins to their highest levels in years. Higher profits will beget more spending, which will beget more business expansion, which will beget more income for workers, which should trigger yet another increase in demand.
Don't look now, but the surging economy may be the real October surprise.
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