Positive Economic Data

On Thursday, Mar 29^th, natural gas supplies were huge, demand low, and price  plummeted so quickly that some commodity traders and analysts were fretting about the real possibility that natural gas providers may actually pay large retail or industrial buyers to remove some of their inventory to their storage facilities.  In other words, a negative price. Can’t get any lower than that. Thus,  no inflationary pressure for natural gas. 

Also on the commodity market: crude oil barrel price down to nearly $101; a rapid decrease from a week ago when it hit $110/barrel. Gasoline supplies and oil supplies are enormous in the USA at this moment while demand is down. Same for the rest of the global oil market. Thus: no inflationary pressure for crude oil. 

Gasoline pump prices: some analysts are pushing the panic button and claiming inflation is rising and gas pump prices are the indicator.  Hogwash. The above information denies and basis for their panic. And consider that pump prices are up only because traders are bidding up the prices because they want them there, and they are highlighting Middle East tensions between Iran and Israel, and Iran’s threats over the Straits of Hormuz. Gasoline prices in America are thus manipulated to higher levels because of intrusive behaviors not related to supply and demand; only fears of that. Thus: inflation should be zero at the pump. It isn’t, but that has nothing to do with the real world, just market hedgers. 

The market analysts I read feel inflation is a problem and the Federal Reserve needs to do something about it, namely raise key interest rates.  Again, Hogwash. Those rates go up only when the Fed needs to dampen the economy and save us from runaway inflationary pressures.  Does anyone really see any such pressure? 

There are a few consumer related pricing problems but those are not related to the overall economy, just the oddities of specific markets; to wit:

• Rents are rising for homes and apartments; this is due to competition for such space as home ownership declines via foreclosures and owner ‘walk-aways;’ prices will ease as empty homes are added to the rental market
• Food products are more complicated; some produce is out of season and prices rise accordingly; some product price is rising due to the cost of fuel for delivery; neither is a trend supportive of inflation; could be but not yet
• Clothing prices remain low and controlled in the market unless you are speaking of designer duds or unique fad items; low prices come from global competition!
• Auto prices are stable as the industry globally works its way back to a healthy position; competition keeps price increases modest
• Transportation costs are rising (air and train fares) primarily due to fuel costs and the need to replace aging infrastructure and equipment; these are normal
• Home pricing remains depressed due to huge supply and low demand; this will change once employment returns to higher levels and disposable incomes allow consumers to re-enter the housing market

If fuel/natural gas/oil prices continue soft or downward, some of the above pricing will soften as well. Thus, inflation is not a current problem and one issue the Federal Reserve does not have to worry about.

Another economic concern: private employers are expanding employment as they retool for a new, refreshed economy. Their economic forecasts are positive.  This is very good news and one which cancels the earlier doom and gloom forecasts based on lost jobs.

The real job losses in the past two years has been with government employers. As tax revenues declined at nearly every level of government – local, regional, state and federal – jobs were eliminated permanently and temporarily. Re-employment in these areas have not yet resumed. When they do the unemployment rates will fall.

Another word on employment data, and this will come as no surprise to regular readers of this blog.  The recession we have been experiencing is more than a cyclical downturn.  It is also a restructuring of the economy. Obsolete employers are out of business or in the process of their final demise. Retailing is adjusting madly to etrade dynamics. Retail will not return to old levels; sales will be from many sources but an increasing Internet scene for sure.

Old jobs will likely not return. New jobs will be defined and the unemployed will need to adjust their career paths accordingly. I’ve stated that before; you know it is true. The only unknown is when and by how much. And in which exact sectors.

Global economics will continue to compete with our nation’s abilities and outputs. That is good for consumers inasmuch as cost of living components will have price dampening competition working in their favor.

The economy is working its way out of its doldrums. It could have done so much faster if the entire country had collaborated and worked together. But such is the state of our political gridlock that that behavior is absent.

Inflation?  Not likely with the exception of specific products and markets.  That’s good news indeed. So please beware of ‘pretend facts’ as they compete with the real facts.

March 31, 2012