Today I decided to gauge the direction the economy is heading by looking at a few economic indicators. What I saw were signs that things are starting to slowly pick back up.
First we have the Consumer Sentiment Index. Basically, this is a measure of consumer confidence as reported through survey data. Though, it has been on rise since 2009, it’ll be awhile until we see the confidence levels from the pre-Bush era.
Next we have expected inflation. This figure is currently floating around fewer than 3% and is much lower than Fox News would have us believe. So yea, we don’t need to worry about hyperinflation. There are, however, certain negative implications associated with low rates of inflation.
Our current economic climate is often compared to that of Japan’s during the 1990s. In this case, some economists worry that the US might actually be heading towards the same deflation Japan suffered from. And deflation isn’t good. Among other things, deflation offsets borrowing and spending because the dollars of tomorrow are worth more than the dollars of today. There are other reasons, but I won’t get into them now. My point here is that hyperinflation isn’t an issue.
Thirdly, the Financial Stress Index is indicating that the financial markets are recovering nicely (surprise surprise). For more information on what this index is, check out:
http://research.stlouisfed.org/publications/net/NETJan2010Appendix.pdf
Lastly, I would like to mention the home vacancy rate. This indicator is often a good measure of the direction of economy, especially after a recession. And it’s crucial to the recession we’re recovering from now because of its housing origins. According to the graph, we’ve seemed to have hit the peak of the vacancy rate and are starting to slide back down. This is good and it’s implying that the number of foreclosures, property seizures, and homes waiting to be sold in the market are starting to come back down. This is phenomenal news and I want to continue seeing this rate drop.
So, in the end, maybe things aren’t so bad. Though the right wing media keeps their Campaign of Fear alive, the state of the economy really isn’t as bad as it seems. However, that is not to understate the implications of the vast unemployment and slow job creation. And for some reason, these seem to be the topics that don’t get much attention in Washington these days. In fact, there isn’t much talk of the economy going on at all. Our leaders, for some reason, are more worried about short term solutions to the federal budget woes than about jobs for the true drivers of the economy. It just goes to show the level of disconnect.
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