Good morning, all. Here are some of the stories I'm reading on the issues, and the politics, affecting the U.S. economy.
Dog bites man, Putin rescues Obama.
Stranger things have happened. Yesterday, an off-the-cuff remark by Secretary of State John Kerry turned into a serious Russian proposal to avert another Middle East war. Asked what could stop a U.S. military attack on Syria, Kerry said: a decision by President Bashar al-Assad to turn over all his chemical weapons to the international community. In six TV news interviews last night, President Barack Obama took credit for discussing that very idea with Russia's Vladimir Putin. What delicious irony: Putin has given Obama the excuse he needed to avoid what could have been a humiliating "no" vote in Congress -- and to resume his leadership from behind.
We can do it without you.
Manufacturers are relatively optimistic about third-quarter production and sales, according to a survey by the National Association of Manufacturers, which represents small and large business. That optimism doesn't extend to hiring: 60 percent of manufacturers have no plans to increase payrolls. And for the third quarter in a row, "the top challenge was rising health care and insurance costs," the NAM reports. It's sounding like a broken record.
Is small business bucking the trend? On the other hand, the National Federation of Independent Business -- the voice of small business -- had some surprising news in its monthly August survey. The index of hiring plans jumped 7 points to its highest level since 2007. At the same time, firms "shed the largest number of workers in months," according to the NFIB. Even within the survey there were contradictions. Expectations for business conditions six months from now were more negative even as "expectations for real sales gains improved by eight points."
A "rather perplexing set of statistics," the NFIB concluded, hopeful the September survey will clarify the inconsistencies.
Stop the presses: Investors aren't rational.
John Williams, president of the Federal Reserve Bank of San Francisco, said as much in a speech to the annual meeting of the National Association of Business Economists. "We need to acknowledge that investors and financial markets do not behave the way rational asset price theory implies," Williams said. It's about time someone pointed out that reality differs from theory. Williams' solution? "Something more complicated than the simple and elegant rational models we have relied on in the past," he said. In other words, a better mousetrap.
Miscommunication was not the problem.
Remember all the nonsense about how the Fed hadn't been clear that tapering wasn't tightening? It turns out professional forecasters heard Ben Bernanke correctly and didn't adjust their outlook for the fed funds rate following tapering talk at the June 18-19 meeting. How, then, to explain the sharp rise in interest rates? New York Fed economists attribute it to a rise in the term premium, or the additional yield investors demand for the perceived risk of holding a long-term security. Another option: Maybe the market doesn't put any faith in forecasters.
Your video for the day.
Click on the link for the trailer for "HANK: Five Years from the Brink," starring former Treasury Secretary Hank Paulson as himself.
(Caroline Baum is a Bloomberg View columnist. Follow her on Twitter.)