Good News Is Finally Good News On Wall Street, Too Dow Is Back Within Eight Of Record Territory Despite Inflationary Implications Of Reports

Savor it while it lasts, for it’s not very often that Wall Street or the Federal Reserve treats good economic news as good news.

Instead of bristling at Friday’s news that unemployment sank to a 24-year low in November as the economy created 400,000 new jobs, investors pushed the stock market back toward record highs for the first time since before October’s frightening selloff.

And despite the inflationary implications of Friday’s employment data, Fed officials still aren’t expected to try and slow the economy by raising the central bank’s interest rates when they meet again on Dec. 16.

The Dow Jones industrial average rose 98.97 points Friday to 8,149.13, leaving it about 110 points short of its Aug. 6 record of 8,259.31. The Standard & Poor’s 500 stock list on Friday edged past its record high close of Oct. 7.

Even if this sounds like a reasonable response to some great news for American workers, it’s still predicated on a warped brand of logic: Good news is good right now only because there’s been so much bad news from overseas.

The presumption since late October - the perceived silver lining to the economic cloud that’s been hanging over Asia - has been that the recent fiscal troubles in other countries will slow a robust U.S. economy enough to help contain inflation without boost in Fed interest rates.

“If this had happened a month ago, the stock market would have fallen sharply,” said John Shaughnessy, chief investment strategist at Advest Inc. in Hartford, Conn. “One of the few positive aspects of this Asian crisis is that people can sit back contentedly and view good economic news as bullish without worrying about the inflationary repercussions.”

But throw in a few more shockers like November’s big jump in new jobs and hourly wages, and it may not be long before the Fed or Wall Street revert to their seemingly perverse perceptions of good news.

The “problem” is that a strong job market forces companies to pay higher wages, which in fact they did in November, according to Friday’s report. Sooner or later, the reasoning goes, those companies will need to cover their rising costs by boosting the prices they charge consumers.

“There’s no question that had the Far Eastern situation not come along, the Fed would probably already have raised rates because of the building pressure of wages and the tightening of the labor market,” said A. Marshall Acuff Jr., of Salomon Smith Barney.

An increase in Fed lending rates would counter inflationary demand by slowing the pace of borrowing and spending. But it would also make U.S. Treasury bonds and other dollar-denominated investments even more enticing to foreign investors, draining even more money from Asia’s shaky financial markets.

“It would just exacerbate a messy situation,” said Shaughnessy.

But while the Fed fancies itself a good neighbor in the global marketplace, the central bank won’t neglect its yard work indefinitely.

Those who believe that the Fed “is on hold for an extended period of time may wind up with egg on their faces. The economy is booming and may overcome any slowdown that the Pacific Rim problems throw at it,” said said Joel L. Naroff, chief bank economist at First Union.

“It may be that the unwillingness to pay for workers is crumbling, as the hourly wage numbers seem to indicate,” Naroff cautioned. “If that is the case, then the Fed will have to start paying more attention to the domestic economy and stop assuming Asia will bail them out.”