By Louis S. Barnes Friday, April 6th, 2012 Since mid-March markets have assumed a better US economy, moving to self-sustaining ground, the 10-year T-note spiking from 2.00% to 2.35%, mortgages up almost the same amount. The primary basis for the improved attitude: the Fed’s announcement in March that QE3 was on hold. Then this week’s release of the Fed’s March meeting minutes again plunked the bond market, rates rising, an odd reaction to the same news, like a couple of guys losing five bucks on the instant-replay of a Kentucky kid dropping a 3-pointer. Never mind. Today’s payroll figures for March arrived at half the forecast, only 120,000 jobs. In thin, Passover-Easter trading, the 10-year is back to 2.05%, mortgages near 4.00%, some even below. Analytical cautions: it’s only one month’s report in a guesstimate series often revised. Some observers found optimism in the stability of government payrolls last moth for the first time in two years. There is no double-dip evidence: the twin ISM reports for March arrived as-had-been, 53.4 manufacturing and 56.0 service sector; and auto sales are the best in four years. I have no hard-data proof, but it is clear in sidewalk conversations with civilians that we are less afraid — less concerned that there is another bottom to fall out. I think stronger economic activity is flowing from those not badly harmed by the Great Recession at last tip-toeing out of their bunkers. Enough with the positives. This is only one poor payroll report, but the strength everyone was happy with was only three months’ worth, and warm-winter months at that. Local government payrolls face deeper cuts as pension and benefit promises hit reality walls, and jobs lost in this sector have been among the very best. We have austerity ahead at the Federal level, no matter what, no matter who in November. The effect of austerity on already rocky economies is plain in Spain, trying to cut its budget by the same GDP percentage as the US at the end of 2012 (US equivalent, $500 billion). Even before these cuts take effect, Spain’s economy is spiraling toward implosion, unemployment so high (officially 23% and rising; youth near 50%) that tax revenue is falling out from under budget cuts, and adding to loan defaults. The US is not in a euro-trap; although we cannot devalue, we can QE. Fed politics bore hell out of everyone, but here’s a little help in decoding Fed-speakers, sorting media scare headlines from actual news of Fed policy. In the last month media have had a blast quoting minor Fed officials saying it’s time to raise rates, no more stimulus necessary, economy’s fine… and so on, whipsawing the stock market, which wants both stimulus and a better economy. Here is the de-coding tool. The Fed has seven “governors” including the Chairman, appointed by Presidents and confirmed by the Senate; and twelve regional Fed banks located in places proportional to the US economy in 1912. I mean no disrespect to the cities involved. Not much, anyway. The governors all have a vote at every meeting, as does the president of the New York Fed, and four regionals rotate voting privileges. The over-covered Fed yappers in the last month have all been presidents of regional Fed banks. If you see a headlined Fed statement, look to see if given by a governor, or a regional prez. If regional, ask yourself, big-city, or boondocks? Regional presidents are selected by regional-bank boards of directors (also selecting themselves); the farther into the weeds, the more narrow and remote to today’s global economy. Thus if you hear from Lacker (Richmond), Plosser (Philadelphia), Bullard (St. Louis), Kocherlakota (Minneapolis), Lockhart (Atlanta), and Fisher (Dallas), know their pinched, insider-promotion, hard-money bias. Kansas City’s Hoenig became the most famous regional blowhard, but his replacement (George) has yet to say anything at all. It is not an accident that the big, coastal-city presidents support an active Fed: their boards are much closer both to centers of US commerce and to continuing global hazard. The governors and New York, San Francisco, Chicago, Cleveland, and Boston all are all on the Chairman’s page, “far too soon to declare victory.” QE3 odds rose today.