The Fed Plants A Flag On Peak Inflation and An Economic Soft Landing

Robert G. Valletta, associate director of research and senior VP at the SF Fed, planted a flag on peak inflation and an economic soft landing in a recent economic research blog post. Valetta provided data suggesting that inflation is finally on a sustained path lower alongside increased risks for a mild recession. The blog post is not an official statement from the Federal Reserve Board of Governors, but the work is a powerful message nonetheless.

Valetta declared “recent data suggest that inflation may have peaked.” The latest inflation projection shows a gradual decline toward the Fed’s 2% average goal around 2025 or 2026. Valetta cautions that “repeated upside surprises” to inflation mean that “the risks to this forecast [are] weighted to the upside.” In other words, we should expect the Federal Reserve to keep its interest rate higher for longer in order to ensure inflation’s glide path stays pointed downward. The graph below shows the recent peak and successive higher forecasts for inflation since March.

After on-going upside revisions, PCE core price inflation is now expected to approach the 2% target somewhere around 2025.

After on-going upside revisions, PCE core price inflation is now expected to approach the 2% target somewhere around 2025. (Source: Federal Reserve Bank of San Francisco)

The cost of peaking inflation is slower growth. Valetta expects “growth to remain well below trend this year and next year before converging back to trend in 2025.” Conveniently, that return to trend occurs just as inflation returns to the Fed’s target. Most importantly, Valetta points to a mere one percentage point increase in unemployment “through 2024.” This expectation means that the onset of a recession next year will create a mild economic slowdown. Today’s unemployment rate is still near the historic low of 3.5%. Unemployment below 5% is surprisingly low for a recessionary environment. The high job vacancy rate softens the economic blow of slowing growth as there is plenty of room to cool off labor demand without disrupting the labor market.

Valetta acknowledged that the inversion of the yield curve suggests that odds are high for a recession: “such yield curve inversions have proven historically to be reliable predictors of recessions over the subsequent 12 months. After some divergence earlier this year, two leading measures of the yield spread have now both become inverted.” However, Valetta does not want readers to decide that a recession is a foregone conclusion: “their predictions come with substantial statistical uncertainty, however, and are not definitive indications that a recession is looming.”

Inverted yield curves have preceded recessions since the late 1980s.

Inverted yield curves have preceded recessions since the late 1980s. (Source: Federal Reserve Bank of San Francisco)

The Fed’s success in fighting inflation has come from a “proxy funds rate” that is much higher than the effective funds rate. According to the SF Fed, “this measure uses public and private borrowing rates and spreads to infer the broader stance of monetary policy.” The gap between the proxy and effective rate is higher than ever. No wonder Fed Chair Jerome Powell can so comfortably reiterate that the Fed can now slow the pace of rate hikes.

The proxy funds rate is over two percentage points higher than the effective federal funds rates.

With peak inflation finally here, traders and investors should focus on how long the Fed intends to keep a restrictive stance on monetary policy. Given the extended period over which the Fed expects above target inflation, monetary policy should remain restrictive for longer than the market currently expects. In turn, the implication for the stock market of restrictive policy and below trend growth means valuations must come down further and cap upside in market returns for 2023 and perhaps 2024. Time will tell of course.

The S&P 500 (SPY) is out of bear market territory and now trying to fight its way through restrictive monetary policy.

Be careful out there!

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Stock Market Loves Powell Moving from “Keep At It” to “Stay the Course” On Fighting Inflation

When Federal Reserve Chair tersely spoke at Jackson Hole on August 26th, he sent a chill through financial markets. Taking on the toughest inflation-fighting tone he could muster, Powell concluded by proclaiming “we will keep at it until we are confident the job is done.” The S&P 500 (SPY) promptly dropped 3.4% on the day. The message was so harsh that it almost took two months for the stock market to bottom out. Fast-forward to Powell’s speech November 30th titled “Inflation and the Labor Market” at the Hutchins Center on Fiscal and Monetary Policy, Brookings Institution in Washington, D.C. Powell concluded by proclaiming “we will stay the course until the job is done.” The S&P 500 promptly rallied 3.1% on the day. The move was bullish enough to close the index above its 200-day moving average (DMA) for the first time in almost 8 months. The S&P 500 also closed above the May, 2021 low. Something about the difference between “keep at it” and “stay the course” significantly mattered to traders!

The S&P 500 (SPY) rallied enough to punch through two important resistance levels. The cumulative losses from Jackson Hole are now almost reversed.

The S&P 500 (SPY) rallied enough to punch through two important resistance levels. The cumulative losses from Jackson Hole are now almost reversed. (Source: TradingView.com)

If not for the stock market’s reaction, I would have interpreted Powell’s speech to land somewhere between hawkish as ever and no new information. In fact, there were several key points from the speech which should have told the market the Fed is as serious as ever about sustaining an extended fight against inflation (the following are direct quotes unless otherwise indicated; particularly important quotes in bold):

  • It will take substantially more evidence to give comfort that inflation is actually declining. By any standard, inflation remains much too high.
  • So when will inflation come down? I could answer this question by pointing to the inflation forecasts of private-sector forecasters or of FOMC participant…But forecasts have been predicting just such…a decline for more than a year, while inflation has moved stubbornly sideways.
  • It seems to me likely that the ultimate level of rates will need to be somewhat higher than thought at the time of the September meeting and Summary of Economic Projections. (a reiteration from the November monetary policy meeting)
  • Restoring [supply and demand] balance is likely to require a sustained period of below-trend growth. (another reiteration)
  • Despite the tighter policy and slower growth over the past year, we have not seen clear progress on slowing inflation. 
  • It is far too early to declare goods inflation vanquished, but if current trends continue, goods prices should begin to exert downward pressure on overall inflation in coming months. (the stock market must have focused on this claim)
  • As long as new lease inflation keeps falling, we would expect housing services inflation to begin falling sometime next year. Indeed, a decline in this inflation underlies most forecasts of declining inflation. (in other words, this claim is old news)
  • We can see that a significant and persistent labor supply shortfall opened up during the pandemic—a shortfall that appears unlikely to fully close anytime soon. (the stock market clearly did not hear this)
  • The labor market, which is especially important for inflation in core services ex housing, shows only tentative signs of rebalancing, and wage growth remains well above levels that would be consistent with 2 percent inflation over time. (in other words the job market is at risk of sustaining high rates of inflation)
  • Despite some promising developments, we have a long way to go in restoring price stability.
  • It makes sense to moderate the pace of our rate increases as we approach the level of restraint that will be sufficient to bring inflation down. The time for moderating the pace of rate increases may come as soon as the December meeting. (this is another reiteration, but the stock market seemed to treat this as welcome new news)

If the Fed Fund futures market reversed course and priced in lower peak rates, the stock market’s sudden burst of enthusiasm could have made more sense. However, futures speculators just shifted out the peak 5.00%-5.25% range by one meeting, from March, 2023 to May, 2023. The market did move up the schedule for the first rate cut and ended the year at 25 basis points lower. However, note well that during the Q&A Powell reiterated a warning about the market’s expectations for quick rate cuts: “Cutting rates is not something we want to do soon. That is why we’re slowing down.”

Fed Fund futures market peaked rates at the March, 2023 meeting ahead of Powell’s speech (source: CME FedWatch tool)

Fed Fund futures market peaked rates at the May, 2023 meeting after Powell’s speech and moved the first rate cut up by 5 months (source: CME FedWatch tool)

The day’s rally in the stock market is one of those many times to ignore contrary fundamental assessments and pay attention to what the market thinks. If buyers follow through with the 200DMA breakout on the S&P 500, I will assume seasonal tailwinds are in full flight. Absent any shocks, the market could then rally all the way into the Fed’s December 14th pronouncement on monetary policy. That event will give Powell a fresh chance to redirect financial markets if financial conditions loosen up too much by then. Maybe Powell will have to reiterate how the Fed will “keep at it” instead of “staying the course.”

The Q&A of the Brookings Institution session mainly reiterated points from the speech. There were two points that stirred my interest for future reference.

First of all, Powell actually admitted that the housing market was in a bubble. The conditions he described were easily observable at the time: “coming out of the pandemic, rates were very low, people wanted to buy houses, get out of the cities and move to the suburbs. You had a housing bubble. Had prices going up that were very unsustainable levels, and overheating…” However, of course, the Fed did not dare say the “B” word in the middle of the mania. Powell did not offer any thought on whether the bubble could have been moderated by hiking rates sooner…or at least jawbone about the bubble.

Secondly, Powell mentioned one regret from the 2020 policy framework reset that he mentioned almost as a footnote. Powell indicated that he would not repeat the mistake of relying on a long history of low inflation as a basis for making policy. At the reset, Powell communicated that the Fed would not “lift off” (start hiking rates) until it “saw both maximum employment and price stability.” The stock market soared on this news as it correctly interpreted the change as a Fed more tolerant of a higher range in inflation. Powell admitted that commitment “made us under-estimate tail risk.”

I soundly criticized this pronouncement at 2020’s Jackson Hole. While Powell insisted this mistake has nothing to do with today’s inflation, I continue to insist that this commitment made the Fed slow to respond to rising and then realized inflation risks. Members of the Fed have also dismissed the notion that starting rate hikes a little earlier would have made a material difference in the inflation landscape. We will never know the counterfactual of course. Still, I feel somewhat vindicated that the Fed has taken note of its policy mistake (and prior deflationary bias) and learned some lessons.

Be careful out there!

Appendix: Notes from the Q&A session

Wage increases are going to be a core part of the inflation story going forward.

The labor market has a real supply imbalance

For most workers, wage increases are being eaten up by inflation. Need price stability to get real wage increases.

We assumed that the natural rate of unemployment had gone higher during the pandemic. It’s very hard to pin down where it is when there is a massive disruption.

Used to be able to look through supply shocks. But if we have repeated shocks, it changes things. What are the implications if true? Very hard to know the answers. We tend to think things will return to where they were naturally, but that’s not happening.

Need to be humble and skeptical about inflation forecasts for some time, calls for a risk management framework. If you are waiting for actual evidence for inflation coming down, it is possible to over-tighten. Slowing down is a good way of balancing the risks.

Very few professional forecasters have gotten inflation right.

There isn’t any one summary statistic to determine when policy is sufficiently restrictive. We monitor the tightening of financial conditions (which happens based on expectations). We also look at the effect of these conditions on the economy. Look at the entire rate curve. For significantly positive real rates along the entire curve. Forward inflation expectations reflect confidence in the Fed getting inflation down to 2%. Look at exchange rates, asset prices. Put some weight on these things.

How do you know when you can stop shrinking the balance sheet? This has already been described in a document. We’re in an ample reserves regime. General changes will not impact the funds rate. Will allow reserves to decline until somewhat above where we think is scarcity. Hold the balance sheet constant….. The demand for reserves is not stable. It’s a public benefit to have plenty of liquidity.

Question: August, 2020 announced new flexible inflation targeting framework. Anything in that we should be rethinking. Answer: We will do another review in 2026 or 2026. We implemented through guidance of various kinds. Put in strong guidance because there were a lot doubters that we could ever achieve 2%. Neither did we know. One piece of guidance we wouldn’t do again (it doesn’t have anything to do with the inflation we are currently seeing): we wouldn’t lift off until see saw both maximum employment and price stability. It made us under-estimate tail risk. Remember 25 years of low inflation, inflation just didn’t seem likely.

Cutting rates is not something we want to do soon. That is why we’re slowing down.

It’s not reasonable to expect we get back to the labor force participation in 2020 before the pandemic. But I wouldn’t rule it out. It’s been disappoint and surprising how little we’ve gained back.

We have to assume that for now most of the labor force balancing has to come on the demand side. By slowing job growth, not putting people out of work.

At what point do people ask for more wages because they aren’t keeping up with inflation. Don’t know when that happens, but if it does, you’re in trouble. Labor shortage is not going away anytime soon.

Coming out of the pandemic, rates were very low, people wanted to buy houses, get out of the cities and move to the suburbs, You had a housing bubble. Had prices going up that were very unsustainable levels, and overheating, now the housing market is coming out the other side of that. We have a built-up country, we have zoning, it’s hard to get homes built to meet demand

Full disclosure: long SPY call spread


Wages on the rise in China

Several reports have been published this year documenting rising wages in China. In “Wage Rises in China May Ease Slowdown“, the WSJ notes that these increases may help lower the impact of a slowdown in China as workers have more money to purchase goods (although it is not clear to me how much this helps if a lot of the money goes into buying foreign goods as the article suggests could happen).

The current and projected jumps in labor costs are dramatic:

“…wage income for urban households rose 13% year-on-year in the first half, and average monthly income for migrant workers rose 14.9%, according to data from China’s National Bureau of Statistics. A labor ministry survey of 91 cities in the first quarter showed demand for workers outstripping supply by a record amount, pointing to low unemployment…

…At current rates, China’s private-sector manufacturing wages will double from their 2011 levels by 2015, and triple by 2017, eroding competitiveness and denting the exports that have played a key part in China’s early growth.”

These wage hikes are coming off low levels. For example, as of February of this year, Hon Hai Precision Industry Co, the company that manufactures Apple (AAPL) iPads, reported a 10% increase in base salary for its factory workers to 2,200 yuan ($345) per month.

Moreover, the supply of new, young workers will decrease thanks to China’s one-child policy:

“In 2005, there were 120.7 million Chinese people aged 15-19, according to United Nations estimates. By 2010, that had fallen to 105.3 million, and by 2015 it is expected to dip to 94.9 million.”

Finally the government is forcing the minimum wage and benefits higher:

“China is committed to sharply raising minimum wages, which puts pressure on employers to raise salaries for higher skilled workers. Beijing also has increased requirements for severance payments, which discourages layoffs unless business drops severely.”

It will be interesting to watch what happens to China’s economy as its manufacturing competitiveness declines slowly but surely with the increase in wages.


U.S. workers missing out on the “reflation celebration”

Several times on these pages, I have “celebrated” various confirmations of reflation as indicated by the soaring salaries of CEOs, largely through stock-based compensation. On October 10th, the New York Times printed the results of a study that confirmed what many of us already knew from informal observation: the wages of U.S. workers have fallen at a faster rate than they did during the recession. This “deflation” is working in the exact reverse of the trend for those who who hire these workers and run their companies! From “Recession Officially Over, U.S. Incomes Kept Falling” (NY Times via CNBC):

“Between June 2009, when the recession officially ended, and June 2011, inflation-adjusted median household income fell 6.7 percent, to $49,909, according to a study by two former Census Bureau officials. During the recession — from December 2007 to June 2009 — household income fell 3.2 percent.”

This is a sobering statistic that has potentially dire implications for the economy in general. Compare this situation to that in China where an on-going study in the New York Times concludes that China’s government has propped up its banks and large corporations at the expense of Chinese workers (see “As Its Economy Sprints Ahead, China’s People Are Left Behind.”):

“Under an economic system that favors state-run banks and companies over wage earners, the government keeps the interest rate on savings accounts so artificially low that it cannot keep pace with China’s rising inflation. At the same time, other factors in which the government plays a role — a weak social safety net, depressed wages and soaring home prices — create a hoarding impulse that compels many people to keep saving anyway, against an uncertain future.

Indeed, economists say this nation’s decade of remarkable economic growth, led by exports and government investment in big projects like China’s high-speed rail network, has to a great extent been underwritten by the household savings — not the spending — of the country’s 1.3 billion people.

This system, which some experts refer to as state capitalism, depends on the transfer of wealth from Chinese households to state-run banks, government-backed corporations and the affluent few who are well enough connected to benefit from the arrangement.”

Neither system, in the U.S. or China, appear stable to me. With China dependent on the income (or rising debt) of U.S. workers to keep its exports alive, these systems of increasing inequity actually start to look increasingly unstable. I will be monitoring these processes even more closely going forward. They are certainly deflationary, not inflationary.


Production costs may have the last laugh on The Simpsons

The venerable cartoon series “The Simpsons” has a strong following that has kept the show alive for a record 23 seasons. However, NPR reports hat rising production costs threaten to deliver the last laugh on The Simpsons. 20th Century Fox Television wants the show’s actors to take a 45% pay cut on the $8M a year they currently earn. A $4.4M salary sure sounds fantastic to 99% of us, but in wages and income, relativity counts. These actors have certainly built lifestyles to match their salaries and a sudden and drastic cut could actually cause at least a few of them some hardships (hopefully just in the short-term).

If negotiation go poorly, the actors will be left with zero pay. Hopefully, they will still get a cut of the treasure trove that awaits in syndication. NPR states that “…one analyst noted that ending the show would make it worth even more in syndication — perhaps $1.5 million for each of the show’s 506 episodes, which would bring in something like $750 million.” This means the studio actually has a large incentive to end the series rather than continue to pay high production costs to keep the show going.

For more, see or listen to “Do Rising Costs Have ‘The Simpsons’ On The Ropes?


Reflation celebration for corporate executives in Arizona and Georgia

The spotlight is shining bright these days on executive pay. I have cited several stories regarding the tremendous increases in executive pay that occurred in 2010 that resoundingly reversed (and then some) stagnation and sometimes declines in executive pay in 2009. (See for example, “Pay rises 13% for CEOs at Canada’s top 100 public companies” and “CEOs recover all the pay they lost during the recession” or review articles under the category “Salaries“).

This weekend, I noted two state-based stories on executive pay that demonstrated how dramatic a turn-around has occurred in the pay for specific executives.

In “Lucrative paydays for corporate chiefs“, the Atlanta-Journal Constitution reports:

“Here’s one measure of just how good it was: $232.9 million.

That’s the total compensation that the chief executives at Georgia’s 25 most-valuable public companies took home last year, according to The Atlanta Journal-Constitution’s review of the annual disclosures required by the Securities and Exchange Commission…

Here’s another measure of just how lucrative 2010 was: 29 percent. That’s the average pay raise the 25 executives saw last year.”

In “Arizona CEO’s median compensation surged 48% in 2010“, The Arizona Republic reports:

“Sparked by rising profits and rebounding stock prices, the median compensation for chief executive officers and chairmen at Arizona-based public companies surged 48 percent in 2010, hitting a statewide record of $1.54 million.

Plus, hefty pay packages were shared more broadly by other top officials at 43 corporations based in the state. Some 74 senior executives below the CEO level earned at least $750,000, up from 63 who earned that much the year before.”

In both cases, compensation swelled partially thanks to a strong rebound in the stock market, meaning that corporate executives have greatly benefited from the reflation generated by economic stimulus and/or monetary easing. As I have mentioned in previous posts, strong corporate profits have supported all forms of equity-based wealth and effectively beat back the ghosts of deflation in 2010.

Of course, the huge irony is that poor employment reports and stagnating personal income data tell a different story. For example, after Friday’s awful jobs report and the on-going dire news coming from the housing market, you would be excused for assuming the entire country had dipped back into a poverty-stricken recession. Such is definitely not the case for the big winners of 2010.


Pay rises 13% for CEOs at Canada’s top 100 public companies

In “Back in the green: CEO pay jumps 13 per cent“, Globe and Mail reports that CEOs at Canada’s top 100 public companies received average pay raises of 13% in 2010. This comes on the heels of dismal pay performance in 2009 and 2010 where pay was essentially flat. 2010’s pay hikes is similar to the double-digit pay gains Canada’s CEO typically experienced before the recession.

The article includes an interesting discussion of “performance share units” which calibrates performance-based pay to the company’s relative performance to its peers. This method prevents pay hikes from general market forces that the CEO does not control, like the rising price of oil.


Compensation in High Tech Inflating Labor Costs

In “Salaries at Apple, Google a big investor concern – Commentary: Higher pay, benefit costs driving up expenses,” Marketwatch writer John Shinal laments that:

“Given that every full-time employee gets health insurance and other benefits that make up anywhere from a quarter to half their overall compensation, and that health-care costs are rising in the double-digit percentages, it’s safe to assume that U.S. tech companies are seeing employee costs rise in the double figures, as an annual percentage.”

In 2009, wages in high tech went up 5-10%. So Shinal’s assessment is consistent with a labor market that was relatively tight even at the height of the recession and beginning of the recovery.


Tuition up and top salaries secure on college campuses

This is a good news/bad news tale of inflation.

The good news is that the salaries and benefits for college presidents at public universities held steady the last academic year (2009-2010) as reported by AJC.com in “Study: Recession hasn’t cut college president salaries“. This was no easy feat given the generous compensation:

“The median total compensation for 185 presidents running the country’s largest public research universities was $440,487. About one-third earned more than $500,000 and the 10 highest earned more than $725,000 each. Ohio State University President E. Gordon Gee received $1.8 million, the highest.”

Of course, staying flat is nothing compared to the 27% hike in median pay for the nation’s CEOs in 2010, but those increases only restored CEOs to pre-recession levels. A University of Georgia spokesman defended the pay for presidents by pointing out the limited supply of qualified candidates for the job.

The bad news about inflation on college campuses is that tuition increased. Students paid a whopping 25% more in tuition in the last academic year. Assuming most of them will not grow up to be CEOs, they can probably look forward to working in a company where their salaries will not keep pace with the head honcho. (The average compensation package increased 2.1% last year).


Wages in Australia Continue to Rise Strongly

In “Australia Boom Pays Men Without Degree More Than Bernanke“, Bloomberg uses a gimmicky title to call attention to the tremendous gains in Australian wages during the current boom in commodities:

“Wages grew 3.9 percent in the three months through December from a year earlier, the fastest pace since the first quarter of 2009, according to government figures. When the central bank decided March 1 to keep its official cash rate at 4.75 percent, it said wage growth had returned to levels reached before a 2009 decline.”

Bloomberg also reports that Australian unions are seizing this opportunity to press for higher wages:

“The Construction, Forestry, Mining and Energy Union, Australia’s biggest in the building industry, sought pay increases in February of as much as 24 percent over four years. The Communications, Electrical and Plumbers Union is seeking annual pay rises of 5 percent over the next three years, almost double the inflation rate.”

The article speculates that tight labor conditions and rising wages could place additional pressure on the Reserve Bank of Australia to restart its rate-hiking campaign. Such speculation could explain the Australian dollar’s rapid rise to new all-time highs against the U.S. dollar.

Australian dollar makes new all-time highs against the U.S. dollar

Australian dollar makes new all-time highs against the U.S. dollar


Source: dailyfx.com charts

Disclosure: author is long FXA (Rydex Currency Shares Australian Dollar Trust ETF)


Evans not worried about inflation because of high unemployment

Charles Evans, President of the Chicago Federal Reserve, recently spoke at The Darla Moore School of Business giving “A Perspective on the Current Economy.” The press summarized the lecture by indicating Evans remains a “dove” on inflation:

“The Fed is more sanguine about inflation than some because an outbreak of higher prices is missing a key ingredient – higher wages, Evans said…A weak labor market will continue to exert important downward influences on inflationary pressures, he said.” (from Marketwatch)

A cynical person could say that Evans does not fear inflation because QE2 has failed to provide the one single thing that Americans care most about in the economy right now: jobs. Instead, I will note that this commentary comes immediately on the heels of an op-ed piece from Laurence H. Meyer, a former governor of the Federal Reserve, who opined that inflation is not a problem…and even if it became one, the Fed would quickly get it back under control. Since the Federal Reserve cares more about inflation expectations than current levels of inflation, it makes a lot of sense that a good amount of energy is spent trying to convince people that no matter what the data say or the anecdotal evidence (or Inflation Watch postings for that matter!), the future is fine.

However, the Wall Street Journal noted that the commentary from Evans runs directly counter to the warnings of coming inflationary pressures from FOMC voting member Charles Plosser, president of the Philadelphia Federal Reserve Bank (see here). Apparently, the gameplan and script are not receiving the same reading on the team!


What is going on in Silicon Valley?

Consider:

  • Tired of defections to Facebook and elsewhere, Google is offering all of its employees a 10 percent salary increase.
  • Twenty-five employees fired by Digg were immediately approached by other companies, including Twitter and Groupon.
  • Talented college grads with no work experience are reportedly getting job offers paying $120,000 or (much)  more.
  • I.T. job postings are booming.
  • Start-ups are being acquired just for their employees. Derek Andersen: “[L]ook at the number of companies getting acquired for talent by Google, Facebook, and now LinkedIn. Seems like someone is getting bought for talent every other week. It hasn’t been that way for a couple of years. A top tier developer friend recently told me that he’s been encouraged by many to start a company and sell to Google/Yahoo in 6-months for a big check just to acquire the team. I believe it’s 100% realistic.”

Something is happening here, and it sure ain’t deflation.

Related:

Is The Silicon Valley Talent Shortage Getting Worse?

Silicon Valley and the  Talent Crunch


Employing Workers Will Get More Expensive in 2010

Employing workers will get even more expensive in 2010. The National Association of State Workforce Agencies (NASWA) reports that at least 33 states will raise payroll taxes next year to shore up depleted unemployment insurance funds. Click here for complete story….


Survey: U.S. companies plan to hire in 2010; have already been raising prices

Bloomberg:

For the first time in a year, U.S. companies are planning to boost payrolls and investments, indicating the nascent economic recovery will be sustained into 2010, a private survey showed.The percentage of businesses expecting to hire staff over the next six months exceeded the share projecting more firings by 4 points, the first positive reading since July 2008, according to figures from the National Association for Business Economics issued today in Washington. The spread in favor of those looking to spend more on new equipment was even larger.

The survey also showed that companies have begun raising prices of their products:

[P]rice increases are starting to become more prevalent as demand improves. Twenty-three percent of the companies surveyed by NABE this month said they raised prices since the prior survey, up from 8 percent in July. Just one out of every 10 said they had to cut what they charged customers, down from two out of 10 three months ago.