Posted by Frank James at 1:52 pm CDT
Earlier this month, my colleague Bill Neikirk blogged about the potential for a return of stagflation, the dreaded twin curses of a stagnant economy and rising inflation.
As he wrote then, it would premature to say we've arrived at the point of stagflation. But today's gross domestic product report which indicates that the economy grew during the second quarter at less than half the first-quarter rate did at the same time an important inflation gauge came in higher than some analysts expected, put a momentary stagflationary shiver through me.
The 2.5 percent growth rate for the second quarter is actually good news of a sort. It's solid, sustainable growth. Yet it takes pressure off Federal Reserve Chair Ben Bernanke to increase short-term interest rates once again when the Fed meets Aug. 8.
That's why the Dow Jones Industrial Average is up more than 130 points as I write this. The financial markets believe it's more likely the central bank will take a breather on the whole inflation-fighting campaign, at least for a little while.
But within that 2.5 percent growth rate was something economists hadn't expected. We've all seen the for-sale signs that have been up for months in front of houses that have languished on the market. Many economists thought that drop in residential investment would be offset by businesses making capital expenditures on things like machines and software. But those investments fell too.
Meanwhile,an important inflation measuring stick, the price index for personal consumption expenditures, excluding food and energy, the so-called core rate, rose by 2.3 percent for the second quarter. So maybe Bernanke will believe he has to soon raise short term rates again after all.
The numbers give worriers something to stew about, too.
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Comments
According to the above article, the latest economic figures contained several items "economists hadn't expected". If economists have no idea what went on in the economy the past 3 months, to the extent they are surprised by some figures, why should anyone listen to their predictions for the future? Put another way, if they can't AFTER THE FACT understand the last quarter's economy, why should anyone pay any attemtion to what they say?
Posted by: Bruce | July 28, 2006 5:17 PM
If you want to listen to an economist and have faith in his predictions, you have to find an econimist that has only one hand.
Because, an econimist always ends his predictions with "...on the other hand..."
Posted by: Terry | July 28, 2006 5:29 PM
I heard on NPR yesterday that new housing starts are way down and it is a buyers market. Too much property out there for sale. Many people are dropping their asking prices because they can't sell. How does this figure into the big picture?
Posted by: lochnessmonster | July 29, 2006 6:47 AM
lochnessmonster
Like good news for buyers and bad news for sellers. Pretty much a wash for the economy especially if it is short term (say a year or less).
As Alan Greenspan was fond of saying when asked what the market was going to do? "I'll tell you what the market is going to do... the market will flucuate." (My apologies if I did not get the quote exactly right - I have not got the time to look it up right now).
RRD
Posted by: RRD | July 29, 2006 12:05 PM
"If you took all of the economist in the world and laid them end to end, they would point in every different direction"
-Harry Truman
Posted by: BZ | July 29, 2006 4:45 PM
The National Association of Home Builders predicted a slower new housing rate this year, just off last year's record, but still historically strong. The housing market has been on fire for five years, all housing people knew setting records year after year can't sustain itself.
And, yes, people are lowering their prices, because most expected 10 to 20 percent growth to continue. Despite realtors telling them that 3 to 5 percent higher this year than last year is more realistic. Having said that, homes are still selling way higher today than they did justy five years ago.
Posted by: John D | July 29, 2006 11:47 PM
The sun just set in the East.
The white mice are walking backward!
I let somebody make a lane change and didn't get the finger in return!!
I agree with Bruce on this one!!!!!
Posted by: C.Morris | July 30, 2006 4:05 PM