Consumer Confidence, CPI, GDP & Current Account Balance
David Altig's Macroblog has three gems, the first being Consumer Sentiment Throws a Funeral, And Nobobdy Comes,
"If you're a central banker, however, the inflation expectations part of the Michigan survey does make you think twice. This comes from the survey newsletter:
Consumers expected an inflation rate of 4.6% during the year ahead in early September, a substantial jump from the 3.1% recorded in August, and the highest inflation rate expected since 1990."
the second being Where's The Inflation?
"there is no guarantee that focusing on core inflation will stabilize the cost-of-living over horizons that people may care about."
Our comments follow: Last week, mixed retail sales reports, 2 weeks ago a massive consumer credit downturn, this week downturns in Philly Fed and UMCC.
Taken together this data indicates an oil price shock latency which is starting to effect the economy.
Comments from a neighbor or the average American Joe: "just feeding 2 kids and 2 adults is costing over $150 a week with nothing special on the menu."
"Everything at the stores has gone up at least 10% and at $3 a gallon they are really bending us over and f__king us royally at the gas pumps."
Of course the current CPI was "in line" +0.5 and indicated "tame" core inflation +0.1 for the 4th straight month.
With oil spiking into the $60 - $70 range during this period, I find this absolutely IMPOSSIBLE and quite unbelievable.
Now add the fallout from Katrina, I am waiting to see if the next 2 CPI and PPI reports reflect appropriate levels of inflation being passed through the supply chain, core included.
Gold up to $455 sez someone thinks the Fed will pause. Or do they have less faith in equities and bonds going forward?
Me thinks, bond prices falling sez bond investors are waiting for higher rates, or they think no pause and further inflation going forward.
I believe the Fed keeps raising to target the asset bubbles sans pause, yield curve be dammed.
The third gem is A Little Of This, A Little Of That From The Forecasting Pros,
"The consensus forecast for average 10-year Treasury yields in 2006 is 4.9 percent. And yes, that increase is expected to bite the housing market..."
Our comments follow: Considering the housing bubble industries are probably responsible for 40% of the GDP growth in recent years, you could infer that a pullback in housing will result in a considerable reduction in GDP growth.
My guess 3 years+ is a slow and painful 1.5 to 2% shaved off of GDP. Whether the resulting realignment of labor is orderly remains to be seen.
An interesting codicil: Hypothetically speaking, by understating CPI inflation the current bond market is being fooled.
The real GDP growth rates are being artificially boosted since real GDP is nominal GDP less the understated rate of inflation.
If one were to adjust GDP for real inflation as opposed to the current CPI read and then factor in a future slowdown in housing along with the fallout from Katrina, we may be headed for zero or negative GDP.
Of course, if ZERO GDP is not advertised publicly, this begs a question:
Covertly putting our GDP under 1% or zero, where most of our European trading partners are, would this help a global realignment of current account balances vis a vis forex exchange? That is one of the ultimate goal's isn't it? Just a passing thought.
"If you're a central banker, however, the inflation expectations part of the Michigan survey does make you think twice. This comes from the survey newsletter:
Consumers expected an inflation rate of 4.6% during the year ahead in early September, a substantial jump from the 3.1% recorded in August, and the highest inflation rate expected since 1990."
the second being Where's The Inflation?
"there is no guarantee that focusing on core inflation will stabilize the cost-of-living over horizons that people may care about."
Our comments follow: Last week, mixed retail sales reports, 2 weeks ago a massive consumer credit downturn, this week downturns in Philly Fed and UMCC.
Taken together this data indicates an oil price shock latency which is starting to effect the economy.
Comments from a neighbor or the average American Joe: "just feeding 2 kids and 2 adults is costing over $150 a week with nothing special on the menu."
"Everything at the stores has gone up at least 10% and at $3 a gallon they are really bending us over and f__king us royally at the gas pumps."
Of course the current CPI was "in line" +0.5 and indicated "tame" core inflation +0.1 for the 4th straight month.
With oil spiking into the $60 - $70 range during this period, I find this absolutely IMPOSSIBLE and quite unbelievable.
Now add the fallout from Katrina, I am waiting to see if the next 2 CPI and PPI reports reflect appropriate levels of inflation being passed through the supply chain, core included.
Gold up to $455 sez someone thinks the Fed will pause. Or do they have less faith in equities and bonds going forward?
Me thinks, bond prices falling sez bond investors are waiting for higher rates, or they think no pause and further inflation going forward.
I believe the Fed keeps raising to target the asset bubbles sans pause, yield curve be dammed.
The third gem is A Little Of This, A Little Of That From The Forecasting Pros,
"The consensus forecast for average 10-year Treasury yields in 2006 is 4.9 percent. And yes, that increase is expected to bite the housing market..."
Our comments follow: Considering the housing bubble industries are probably responsible for 40% of the GDP growth in recent years, you could infer that a pullback in housing will result in a considerable reduction in GDP growth.
My guess 3 years+ is a slow and painful 1.5 to 2% shaved off of GDP. Whether the resulting realignment of labor is orderly remains to be seen.
An interesting codicil: Hypothetically speaking, by understating CPI inflation the current bond market is being fooled.
The real GDP growth rates are being artificially boosted since real GDP is nominal GDP less the understated rate of inflation.
If one were to adjust GDP for real inflation as opposed to the current CPI read and then factor in a future slowdown in housing along with the fallout from Katrina, we may be headed for zero or negative GDP.
Of course, if ZERO GDP is not advertised publicly, this begs a question:
Covertly putting our GDP under 1% or zero, where most of our European trading partners are, would this help a global realignment of current account balances vis a vis forex exchange? That is one of the ultimate goal's isn't it? Just a passing thought.
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