Economic Update
We ought, briefly, to catch up on the latest news, most of which points to the ongoing sideways movement of the economy.
Yesterday’s numbers on new claims for unemployment assistance was pretty much in line with expectations. Claims fell by 29,000 to 343,000 which is still a relatively high level but much closer to healthy than where we were a year or so ago. So progress has been made in the labor market. Just not enough. Making this week’s figures difficult to place on the scale of good to bad is that at least part of the decrease is simply due to the unwinding of the hurricane Sandy effect. So this is yet another of those occasions when we have to take a longer term view. If we do that the we see a steadily improving trend at a slow rate. I suppose this is not news. It fits right into the well established pattern.
Today’s inflation numbers are a little more interesting. The CPI dropped 0.3% in November. This was largely due to declining gasoline prices. When we exclude food and energy from the index it actually rose by 0.1%. Either way this is evidence of negligible inflation. Clearly, with the economy languishing deep in a rut, and with activity slowing around the entire globe, there is no pressure on prices at all. This ought to allay any and all fears of hyperinflation stemming from recent Fed stimulus activity, but I doubt it will. One of the most tenacious errors we have suffered through in this crisis has been the constant cries of imminent inflation from right wing analysts and economists. They stick determinedly to their discredited opinion that the Fed’s support of the economy has created a flood of money that – nay day now – will send prices surging. This position is so out of line with the evidence that is now hopelessly exposed as purely ideological and without a trace of support from actual events. While our economy lingers in the shadows as it is the Fed’s activity will have no impact on prices. Not, at least, an inflationary impact. So to base policy recommendations on the fear of imminent inflation is both dangerous and cruel. Such policies would compound rather than mitigate our problems.
On a different note: retail sales rose slightly in November. The 0.3% increase offset exactly the decline in October, leaving us back where we started. There had been a hope that the undoing of the Sandy effect would produce a stronger uptick in November, but the usual suspects – poor wage growth, consumer uncertainty etc – conspired to keep sales relatively slow. Still at least sales recovered. That is something to keep in mind.
So. What do these numbers all mean?
I am afraid they send the same message as before: the economy plods along at an unacceptably slow rate. Growth is weak and insufficient to lift us out of the doldrums.
To put this in perspective: the Fed’s latest forecast is for high unemployment through to the end of 2015. Given that the Fed has been perennially optimistic in its forecasting since the crisis blew up, this paints a somber picture. It implies, amongst other things, that labor market will not return to its pre-crisis levels until a full decade has gone by. This is astonishing. It is testimony to our total lack of will power and to our extraordinary level of policy division. Our leadership has been utterly incapable of either grasping the extent of the damage, or being willing to act. The social cost of this intentional ineptitude is staggering.
Yet here we are.
