The Economy in the near term

Today has brought some rather unsettling economic news. First, GDP for the first quarter is estimated to have risen at a rate of just 1.8%. This anemic growth is blamed by "economists" (according to the media) on higher gasoline prices and "other temporary factors", but the point is that it is a truly horrible result for an economy that is supposedly recovering from a deep recession. Indeed, The national average price for a gallon of regular gasoline was just about $3.00 at the start of the quarter and it rose to $3.20 at the atart of March. That means that for the first two thirds of the quarter, the rise in fuel prices was not that great. By the end of the quarter, a gallone of regular gas cost about $3.50, a thirty cent rise in the price during that last month. Of course, after just less than a month into the second quarter, the average price per gallon is up by another 38 cents. One has to wonder how the rise in gas prices is viewed as temporary when the rate of growth in the second quarter is much greater than it was during the first quarter. Further, there is no sign that the rise in gas prices is abating.

Second, the weekly new claims for unemployment benefits went up by 25,000 to a recent high of 429,000. The four week average is also above 400,000 for the first time in months. This higher unemployment is important since many of those "economists" who discuss the slow rate of growth say that job growth will power the economy forward. Again, one has to wonder how the economy can be powered by job growth when the rate of new unemployment is rising rather than falling.

Third, there has been a confirmation by the government that the rate of inflation is at a recent high. I am speaking about the rate including food and energy prices, a number that the government likes to eliminate to come to what it describes as the core rate of inflation. Core inflation is a nice rate to know if energy and food prices are gyrating up and down. On the other hand, when food prices and energy costs are both soaring, it is silly to eliminate them from the inflation calculations. Real people living real lives have to pay for food and energy. Millions of folks have to pay $50 or more to fill up their cars and that will inevitably mean less money spent on other purchases. If gas prices do not come down, the growth rate for the second quarter will need a big push from somewhere other than consumer spending if it is to resume growing at even a 3% rate.

There is no question that most of the reporters who cover these economic statistics have little idea what they really indicate. Right now, the US economy is showing many signs of slowing. Cheerleading reports that talk about growth ahead do not change the reality of the situation. I hope that there is some reason for the price of energy to decline, but there seems to be no effort by the government to achieve that end. That means that the US is left to market forces. Since the Saudis just cut their output to support the higher prices, it is not likely that we will see a decline soon enough to make a meaningful difference.