Gary Thayer
Gary Thayer
consumer despite energy holding market prices rising spending
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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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.
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If we'd had a substantial decline in the dollar against the Chinese currency we'd have probably seen a substantial rise in the price of some of the items that we buy from China.
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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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Now that we're in a more open economy, and there's a lot more opportunity to get goods from overseas, if manufacturers are operating at full capacity, there's less likelihood that somebody will bid up prices at a domestic producer if they can get it somewhere else.
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The good news is that what we've seen is an unchanged reading for the nonpetroleum items and it looks like what we're still seeing is lower prices for many consumer items.
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The October home sales data were strong, but we are seeing more moderate price increases for new homes suggesting that the housing market is gradually cooling off.
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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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The personal consumption expenditure (PCE) price deflator was revised from 0.7 percent annual rate to 1.0. That's still very low, but it was revised upward instead of downward. There is possibly some building inflationary pressure, but it's still very benign.
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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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We still have a very weak world economy, despite the fact that the U.S. economy is still doing pretty good, ... We're seeing lower prices basically because there is more production out there than demand.
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The decline in the prices paid component is good news. It looks as if we're seeing some moderation in pricing pressures, but not a significant drop.
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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.