Income and Consumption Up, Inflation Down. Time To Party?

The perfect world. Money is rolling in at a pretty good clip.... People are spending at a pretty good clip.... And, the inflation indicator attached is pointing sharply lower. It's the 90's all over again...

... except, wait a second, what was that one thing in the Fed Statement that we were supposed to be cautious about? Wasn't it resource utilization? And aren't incomes, which moved up a whopping 1.0% last month and another 0.6% this month, resource utilization?

Here... Just a subtle reminder:

Recent readings on core inflation have been somewhat elevated. Although inflation pressures seem likely to moderate over time, the high level of resource utilization has the potential to sustain those pressures

I've gone ahead and put the most crucial part in italics, underlined it, colored it red, and then put it in bold just so it would stand out appropriately.

But, I'm sure that an individual that wrote a book on Inflation Targeting, and even titled it Inflation Targeting, probably won't even bat an eyelash to this release. Mere nothingness. A whole giant bowl of nothing more than air.

If you read yesterday's posting on PCE vs. the S&P 500, you knew that there's going to be a whole lotta buying on Friday. And, if your antenna is focused only on the smallest amount of information possible to make your argument work your way, and no other, then this release is all a bowl of red, ripe cherries.

Although I may sound a bit pessimistic, I'm more cautious, that's all. I don't think we're out of the woods just yet. I'm trying hard to believe the Fed right now. If they are right, then the economy moves forward at a relatively firm clip, albeit less than full potential. I see no reason at this point for employment to come down. It looks set to remain firm. I'm just not 100% sold on inflation, regardless of the above chart, to moderate. It's not the price of goods on the first tier. It's the resource utilization, i.e. the employment costs. As prices have risen, people are turning to their employers to help alleviate the pinch of these higher costs. The employers are going to have to turn to their customers to make up this increase.

As long as resource utilization remains contained, then the Fed has no reason to move rates... either up or down. And then you have the perfect world... all with requisite red, ripe cherries in a bowl.

Comments

[peter.rosen...:]

Another issue related to resource utilization is the sharp downturn in Capital Investment that often leads to declining productivity. The only way to combat increasing employment costs is to offset them with increasing productivity.

2007 Apr 01 10:10 AM

[Sr. Pessimist:]

There is a big difference between renewable resources and non-renewable resources. I think Bernanke's statement might be more directed at corporate officers. When he speaks, he mostly addresses the corporations, because those are who the government itself answers to. I read his comment as a warning on tricks like paying extra dividends by taking on debt. There was a food company that did this recently, with like $2 Billion debt just to pay extra money to shareholders. He is probably expressing the danger of cover-ups for a corporation. If the corporate officers loot somebody, then they'd be better to loot the workers by reducing wages than by looting shareholders by taking on debt to give money on dividends their performance in leadership would otherwise not warrant. I'm suspecting he's, in part, telling corporate slime that if they want to cover up their lazy, fruitless performances, they could cause more harm than good taking one strategy as opposed to another. Not a whole lot of this stuff is even illegal until the corporations themselves lobby-bribe Congress to write it into legislation, anyway, so it really counts where they mess up sometimes. A lot of corporations would die with a huge ongoing capital liability tearing into their already-small profit margins.

Circuit City, for instance, is screwed. Those morons fired the main reason customers bother to go in there in the first place instead of buying it on the web. If they hire minimum-wagers, then the customers already know more than the store specialists, and they might as well ask the clerk at McDonald's his own opinion on a device. They sold off their knowledge resource for short-term cash, probably because nobody is dumb enough to buy it out. So milk it to death, pay your shareholders the extra $115 million you're supposed to save by paying your workers enough to buy a bottle of orange juice every hour on the floor, and bail ship as the whole thing dies. I wonder if their "going-out-of-business liquidation clearance sale" prices are lower than their Thanksgiving specials. If you spend your resources like this, the same thing will happen to you, as a corporation, that is about to happen to Circuit City.

Given the level of stupidity in their corporate office, do you suppose anybody there ever bothered to consider that nobody with any sort of incentive beyond desperation would ever work at that place again? You milk your workers and make them disloyal, you can bet they'll "milky-milky" you in return.

2007 Apr 01 08:32 PM