Gary Thayer
Gary Thayer
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Energy prices are dropping, and consumer spending is holding up despite rising unemployment . These are encouraging things the market is recognizing.
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Fewer people are worried about jobs right now, more people think that jobs are easy to get, and I think that's supporting confidence despite the high energy prices.
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We had seen the daily and weekly sentiment surveys show a small dip in consumer attitudes at the end of January. Some of that could have been related to the late January rise in energy prices.
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Today's numbers show that consumers are not very optimistic about the economy. As a result, we will see consumer spending reduced until we see some relief on energy prices. If we don't get some relief, it looks like it will be a very weak holiday season.
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Policy-makers have been worried that rising energy costs could lead to higher prices for other things including higher wages and compensation, but it looks like companies are keeping their employment costs in check.
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The bond market liked the inflation data. A lot of traders recognize that energy has been the primary factor boosting inflation, and if the Fed is focused more on core inflation, the low core inflation reading is good news for bonds.
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It's a good decline in prices for a change. It appears the big drop in energy prices during November has brought the overall inflation rate down considerably.
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We were anticipating that we could see a little bit of an improvement in October because the rebuilding after the hurricanes appears to have started and energy prices have stabilized, but it appears that it will take a little longer for consumers to feel better about things.
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The upturn in confidence is an encouraging sign that economic conditions are stabilizing after the hurricanes. Lower energy prices are helping, but the upturn in employment is also a plus.
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So core inflation is still rising slightly but doesn't appear to be a problem, and I think this is good news for the Federal Reserve . With energy prices declining it reduces the risk that fuel costs will be passed on to consumers.
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The rise in the employment component, combined with the drop in new jobless claims reported earlier today, suggests that employment conditions remain good at the start of the year.
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There's still a lot more inflation fear than there is inflation. There is still concern that the economy could generate inflation at some point but it still doesn't seem to be doing that. The Fed doesn't need to act more aggressively, but it doesn't mean that they won't.
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Productivity numbers on a quarter-to-quarter basis are very volatile. The downwardly revised second-quarter numbers could easily be revised upward in the third quarter.
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We did see a big recovery in (producer) prices, but that was primarily in energy. Core prices increased only modestly and that's good news for the Fed.