Randomly Noted

With Ford the sole (relatively) healthy U.S. auto maker, this week’s newsflow is very instructive: The big events include the likely sale of its Volvo unit to China’s Geely, and Ford’s efforts to get UAW locals to approve measures that would reduce its labor costs. Both news events are key to Ford’s survival. Bidding a final adieu to Volvo, should the Geely deal stick, would conclude an odd period in Ford’s history. Ford bought Volvo in 1999 for $6.4 billion;  as WSJ colleague Norihiko Shirouzu writes, after racking up Volvo-related losses Ford finally decided last year to ditchi t. Ford never should have bought another brand – it needed to improve its own vehicles, which it has finally done. The UAW situation speaks to Ford’s disadvantage relative to rivals Chrysler and General Motors; the latter are in worse financial shape but enjoy lower labor costs thanks to deep UAW concessions made in the heat of the crisis that sent the firms into Chapter 11 bankruptcy protection. As I and others have written, Ford is at a competitive disadvantage by virtue of being the only one of the Detroit 3 to have skirted the need for a federal bailout and bankruptcy protection. It would behoove the UAW locals to get with the program and let Ford function at cost levels that are within hailing distance of Chrysler and GM’s.

In the heat of August, the Federal Reserve didn’t want to say the U.S. economy was getting better. It chose the phrase “leveling out.”

It was as if  the policymakers collectively squinted in August and saw a barely flickering light at the end of the recessionary tunnel.

In this cooling September, the light still requires a squint but it seems to have stopped flickering quite as much. Improvement.

In the time between Aug. 12 and today, information suggests U.S. economic activity has “picked up,” the Fed statement closing out its two-day policy meeting said.

“Picked up” in Fed parlance is reasonably bold. It is straightforward. It leaves minimal wiggle room. The economy is simply getting better.

Household spending “seems to be stabilizing,” the Fed said today, which is just a tad better than August’s “continued to show signs of stabilizing.”

But in this important consumer category, the usual engine of growth for both the U.S. and global economies, the caveats loom large. They are important words chosen by the Fed, and its Open Market Committee used them today and used them back in August.

Ongoing job losses, sluggish income growth, lower housing wealth and tight credit haunt consumer spending, the Fed said.

On the business side of the equation, the Fed categorizes things as less bad, not good. “Businesses are still cutting back on fixed investment and staffing, though at a slower pace,” the Fed said today.

All this tea-leaf reading about the economic and inflation outlook (on the latter the U.S. central bank remains sanguine) is necessary because the Fed remains deeply inactive, as it should be, when it comes to actual changes in interest rate policy. 

It has done nothing new (target range for Federal Funds 0% to 0.25%) and will do nothing new on policy for a long time.

There is no reason to do a thing, because slowly but surely things are going the Fed’s way. The economy is a bit better or a bit less bad. Financial markets are a bit more normal. Equity prices are way up, higher than many think they should be, but their very buoyancy informs and aids the economic recovery.

The Fed will not do a thing on policy for as long as it can. Chairman Ben Bernanke laid out an “exit strategy” to be put in place once the economy is  in full repair and the Fed has to start undoing all the monetary ease and financial underpinning it provided in the heat of the crisis.

That was smart. It helped restore confidence. So the Fed wants to be very cautious now, not even hinting at an exit strategy ujntil the need to start actually exiting is in sight. We are not there yet and the Fed needs not inspire undue speculation.

Too bad Steve Girsky wasn’t on the General Motors board earlier. Maybe it wouldn’t have collapsed. Today, the United Auto Workers has announced it chose Girsky – a former Morgan Stanley auto analyst who briefly advised former GM CEO Rick Wagoner and recently helped expedite the sale of Saturn to Roger Penske – as its representative on the board. A UAW employee health-care trust will own 17.5% of GM when it emerges from Chapter 11 bankruptcy protection. John Stoll of WSJ reports that Girsky has been advising UAW President Ron Gettelfinger in negotiations with America’s ailing auto makers; Gettelfinger clearly liked Girsky enough to put him on the GM board. When I covered the auto industry in the mid 1990s, Girsky was the smartest investment banking analyst around; he was also one of a few analysts who visited automotive suppliers as part of his research into the health of the industry. In other words, he was far more than a desk-bound number cruncher – he went out and talked to people who made cars and car parts. It’s telling that he’s now on the board of a supplier, Dana Corp. Stoll says he’ll probably have to quit that post if he joins GM. If GM’s various new owners populate the board with experts like Girsky, the company may have a future.