The Corner

Goldilocks 2.0 Update

The recession forecast is all but wiped out as the Dow hovers around 14,000, having engineered an impressive comeback from August’s credit-crunch valley.

Some will argue that the stock market is not a good economic predictor. And while there are always exceptions to the rule, over time stocks do have a good track record of predicting the economy. That is why the S&P 500 stock index is one of the components of the index of leading indicators.

Meanwhile, as Wall Street gets prepared for a very important jobs number this Friday, the real-time ISM non-manufacturing index (think services; we are a services economy) registered a nice employment gain of 52.7 in September versus 47.9 in August. Overall, the index came in at 54.8, a point lower than August, but still well within the economic-expansion range.

The September jobs number may end up being stronger than Wall Street thinks.

The dollar rallied this morning and bond rates rose a bit on the ISM and ADP private jobs survey news. I’m sticking with Goldilocks 2.0.

Down in Washington, new budget warrior and supply-sider-in-chief George W. Bush vetoed the S-CHIP bill this morning, demonstrating fiscal toughness and budget restraint. Markets love this. But the GOP still needs new branding on spending control and low tax rates. Tax cuts matter.

Here’s a thought: Why don’t Republican leaders in both houses come up with a pay-go for spending control, not revenues? In other words, if the Democrats want to hike spending in one area, they must cut spending (rather that raise taxes) in another area. And why don’t the same GOP congressional leaders start talking about a balanced-budget approach as their goal?

Call it Dick Armey Redux. Right now the GOP could use a double dose of Dick Armey-type thinking.

Larry Kudlow is the author of JFK and the Reagan Revolution: A Secret History of American Prosperity, written with Brian Domitrovic.

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