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Stephen Dunphy / Times staff columnist
The Newsletter: A look at December

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The economy is hot, the dollar is weak. There are huge budget and current-account deficits that will not go away quickly. The federal-funds rate is negative — when inflation is factored into the equation. When the U.S. employment report for November comes out Friday, it could show an increase in jobs as high as 250,000. October's level of 126,000 new payroll positions likely will be revised — upward.

The employment numbers will be good news, especially for the long-suffering unemployed. Any moves by business to add to payrolls will be welcomed, although at this rate it would take more than a year to recover the 2.6 million jobs lost in the past two years.

Not everyone shares the view of a hot economy.

John Makin, an economist with the American Enterprise Institute, a Washington, D.C.-based conservative think tank, sees a slowing of the growth.

"The policy stimulants administered in very large doses to the U.S. economy at midyear are wearing off fast," Makin wrote. "China's boom, while not ending, is cooling. The result... will be U.S. growth of 3 percent or less in the final quarter of this year and the first quarter of next before tax rebates kick in to provide a lone quarter of 4 percent growth next spring."

So pay attention to the economic statistics coming out this month and next as the year winds down. Here's a look at December:

Today: The productivity number reported today will be extraordinary — in a range of 9 to 10 percent. Unit labor costs are falling at a 5 percent rate. Both help corporate profits increase sharply. But both also combine to reduce demand for new workers.

Friday: Big job-growth numbers will not be enough to lower the nation's unemployment rate, which is likely to remain stuck at 6 percent. One reason is that manufacturing will continue to be weak, losing an expected 10,000 jobs.

Dec. 9: The Federal Reserve meets to talk about short-term interest rates. Don't expect any immediate shift in rates, but the Fed may tell markets that it is shifting its thinking away from inflation and toward a rising economy. If that happens, it all but assures an interest-rate increase, most likely at the March meeting.

Dec. 11: Keep an eye on retail sales as the big holiday shopping season unwinds. A report on sales in November should show an increase of about 0.5 percent, a turnaround from October's somewhat surprising decline of 0.3 percent.

Dec. 12: Producer prices will rise about 0.2 percent for November, down from the sharp 0.8 percent rise in October. Energy prices, especially natural gas, are the main culprit. Weather may play an economic role soon — a severe winter, especially in the Northeast, could put pressure on natural-gas supplies, boosting prices and upsetting several economic apple carts. Meanwhile, economists believe the trade deficit for October will be in the $41 billion range.

Dec. 16: Busy day. Consumer prices, industrial production, factory use and housing starts all will be reported. Taken together they should show what has been the case for a year — no inflation, a lackluster manufacturing sector and a housing market holding up the economy.

Dec. 30: Check consumer confidence. It has been up in recent months, and the consumer holds the key to economic performance in 2004.

Stephen H. Dunphy's columns appear Tuesdays-Fridays and Sundays. Phone: 206-464-2365. Fax: 206-382-8879. E-mail: sdunphy@seattletimes.com.

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