The Good, the Bad and the Ugly

ECON 101 Review-

Output (GDP) = Consumption (C ) + Government spending ( G ) + Business Investment ( I ) + Net export ( NX )

The Good

Capacity Utilization- The assets are being used to produce. Although not quite at 1990s level, we are producing at a healthy rate. If we are producing, we are growing.

Unemployment Claim- Unemployment claims is at all time low: when people have jobs, they will spend. It’s not that difficult. What worries me is that this indicator is dangerously low- see 1999.

Unemployment rate and earnings- same story here. Earnings are at +4%. The more they make, the more they spend.

Business investment and consumption- No surprise here, both households and businesses are spending at a healthy clip. That’s the I and the C in the equation.

The Bad

Consumer sentiment – We are starting to see some deterioration in consumer sentiment. It is dipping a little bit low. This indicator seems to be more volatile in comparison to last economic expansion in 1990s. My guess is that the high oil price and War in Iraq were constantly on the consumers’ mind.

Consumer confidence – We are slightly above 100 here. These two consumers indicators are important because consumption makes up a good chunks of our GDP.

GDP and Chain Deflator – The weak U.S. residential market has taken the wind out of our economy. The question is can we get back to the normal 3-4%.

ISM- If it’s above 50, we are expanding. And if we are below 50, we are contracting. We are dangerously close to dipping below 50.

Construction – Commercial construction is still healthy, but it looks like we might be close to the peak. And we all know the residential construction story by now.

Durable Goods – If we aren’t buying durable goods, what are we spending on?

CPI – I don’t care about volatility, but how can you measure prices of basket of consumers’ goods without Food and Energy. Last time I check, I need to eat to survive.

Auto sales- We are trending down slightly since the peak at 1999. Why are we buying fewer cars?

Federal Budget – I’m surprised to see that we are actually creeping back to a balance budget. It is still in a horrible shape since we have a surplus in our last economic expansion.

And the Ugly

Housing Starts and permit – Partying like its 1995!

Median New Home Price – What do you want me to say? This is just plain UGLY.

Saving Rate – I suggest a couple of rate hike so we can see saving goes back up again. We are in a serious hole and a major down trend.

Export – China, anyone? A little uptick is cause by recent weakness in the USD.

Well, so far, so good. We have consumption and business investment remain intact, but the problem is- How much longer?

High gasoline prices wouldn’t shake the consumers out of their spending spree. If we are to look at the cost of owning a car, we can easily pinpoint that gasoline is a minor cost in owning a vehicle (you just bought a $35,000 BMW and you can’t afford to put $50 gas in it?). Employment and outlook on employment is the key to today’s economy.

No jobs= no spending = ▼ C = ▼ GDP.

Note: Briefing.com is the best.