TEXT OF COMMENTARY

KAI RYSSDAL: There's an obscure statistic some members of the Federal Reserve like to look at. There are a lot of obscure things the Fed looks at, actually. But the one we've got in mind today is called unit labor costs. Sort of a combination of how much pay and benefits hit the bottom line. It's also a pretty solid indicator of whether inflation's on its way And whether the Fed might raise interest rates. The Labor Department told us this morning unit labor costs are up five percent over a year ago. Not necessarily a good thing if inflation's a worry. As it is for Fed chairman Ben Bernanke. The Fed meets in a couple of weeks. And commentator Robert Reich says there's a tough decision to make.

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ROBERT REICH: It's a high-wire act somewhere between a rock and a hard place.

But if Ben Bernanke or any other member of the Fed's Open Market Committee happens to be listening, let me give you my strong advice. Don't raise rates again. Last Friday's report of only 128,000 new jobs in August caps five months of disappointing job numbers. It parallels other evidence of a slowing economy. Real hourly wages continue to fall. Consumer confidence dropped in August.

If you're still not convinced, look at the two sectors of the economy responsible for a big chunk of jobs and economic activity — cars and houses. All post-war recessions prior to the last one started with higher interest rates leading to a drop in new car sales and housing construction.

Well, Detroit is now a huge parking lot of unsold cars. It doesn't exactly help that so many of them are gas guzzlers at a time when gas costs over $2.85 a gallon. Cash give-backs and low-interest financing will only become harder if interest rates go up.

Meanwhile, existing home sales are now down 10 percent from a year ago June. Inventories of unsold homes continue to grow. Prices have not collapsed, but new homes construction is in the pits.

The last recession happened because the stock bubble burst. The Fed got us out of that slump by engineering a housing bubble. But it's not clear what it does if the housing bubble pops.

If you're still not convinced, look at the bond market. Unlike all the other cheerleaders on Wall Street, bond traders are paid to be realists. The yield on the benchmark 10-year T-bill has fallen nearly a half percent from what it was in late June. The bond market isn't worried about inflation. It's thinking economic downturn.

If foreigners get tired of buying T-bills with all their dollars earned from trade surpluses, then we are in real trouble. As the dollar drops, everything we import costs more, which fuels inflation. But the economy, meanwhile, is in the tank. We used to have a word for this. It was called stagflation.

RYSSDAL: Robert Reich was the Secretary of Labor for President Clinton. Now he's a professor of public policy at the University of California Berkeley.