Friday, May 06, 2005

Economic news looks good

Jobs jump in April; stocks rally
Payrolls rose by 274,000 last month
May 6, 2005
The jobless rate holds steady at 5.2%. GE ups its profit guidance just a
tad.The economy created many more jobs than expected in April, assuaging fears
of slowing growth. Nonfarm payrolls rose by 274,000 last month, the Labor
Department said, well ahead of the 174,000 rise in payrolls economists expected.
The unemployment rate stayed steady at 5.2%.

Tax Receipts Exceed Treasury Predictions
Early Surge Lowers Deficit Projections
Washington Post, Thursday, May 5, 2005
The Treasury Department this week reported there would be a $54 billion
swing from projected deficit to surplus in the April-to-June quarter, after an
unanticipated gush of tax payments poured into the Treasury before the April 15
deadline. That prompted private forecasters to lower their deficit projections
for the fiscal year that ends in September.

Eternal optimist and supply side evangelist Larry Kudlow, had this to say,
But the real story behind the higher tax payment numbers is the successful
supply-side experiment that began in the middle of 2003, when investment tax
rates were slashed on capital gains and dividends. With new incentives to
counter the deflation of investment in 2000-2002, both capital formation and
economic growth have come back from the dead over the past 2 years.

Real GDP since the tax cuts has averaged 4.3% at an annual rate, whereas
growth was only 2.4% in the anemic recovery preceding the tax cuts. The latest
government data on tax collection for calendar 2004 confirms the tax-cut-led
recovery through the explosion of high tax collections at lower tax rates. The
Laffer curve is working.

For more on The Laffer Curve, click here.

Smart Money: What's Happening to the Economy?
Is the economy falling apart? Not according to Lakshman Achuthan, managing
director at the Economic Cycle Research Institute, an economic forecasting firm
in New York that has accurately predicted the past three recessions. Achuthan
says the economy hasn't hit a soft patch recently — rising inflation and
stagnating economic growth have been the reality for at least a year.

The good news? The disappointing data, says Achuthan, are actually
indicative of the end of a slowdown, not the beginning of one. He says ECRI's
leading indicators touched their lows months ago, prompting the institute to
forecast a "firming" in the economy for the second half of 2005.

What is the Future for Investors? Tech Central Station Asks Wharton Business School Professor Jeremy Siegel
TCS: Professor Siegel, thanks for joining us. You say in your book that investors are needlessly fixated on growth and too often fall into what you call "the growth trap." Can you explain what you mean?

SIEGEL: The growth trap is falling into a pattern of just buying companies with what you think are the fastest growing earnings, and ignoring the price. It is so important to realize that when you're paying a higher than usual price, you're already putting up for those higher earnings. In fact, I find that the faster growing companies often give poorer returns for investors; those investors that chase after those fast growing companies actually suffer worse returns than those that buy slower growing companies at reasonable prices.