The economic data being reported over the past few months have been mostly positive, perhaps providing a springboard into the new year. However, there are a number of issues clouding the growth outlook for this year. The two biggest right now are consumer deleveraging and the euro zone debt …
The economic data being reported over the past few months have been mostly positive, perhaps providing a springboard into the new year. However, there are a number of issues clouding the growth outlook for this year. The two biggest right now are consumer deleveraging and the euro zone debt crisis.
The most encouraging news in recent months has come from the labor market. Nonfarm payrolls increased by 200,000 in December, and the unemployment rate fell 0.4 percentage points to 8.5 percent over the last two months. Still, the employment-to-population ratio hasn’ t improved since the recovery began (actually its slipped a little—from 59.4 percent to 58.5 percent).
Despite the good news on the jobs front, the real-wage picture still looks stagnant. For 2011 as a whole, average hourly earnings rose 2.1 percent, though they failed to keep pace with the rise in the CPI (barring a shock in December’s inflation data). This trend is echoed in the data on real disposable personal income (personal income less taxes), which are trending at a year-over-year growth rate of −0.1 percent.
Nevertheless, it appears consumers are willing to overlook the somewhat dour income picture and continue to open their pocketbooks. Real consumption is trending at an annualized rate of 3.5 percent over the past three months, well above its 12-month growth rate of 1.7 percent, due in large part to rising goods purchases (up 8.1 percent over the past three months).
The trend in manufacturing production continues to look robust, rising 3.8 percent over the past year. And one important survey of manufacturing-sector health—the ISM’s Manufacturing Purchasing Managers’ Index—increased for the second consecutive month, rising to an index level of 53.9 in December (above the diffusion index’s threshold for growth of 50).
As far as inflation is concerned, measures of underlying inflation produced by the Federal Reserve Bank of Cleveland have edged away from their respective near-term trends. The median CPI rose 1.0 percent and the 16 percent trimmed-mean measure rose 1.1 percent in December. Over the past year, the median CPI is up 2.2 percent, while the trim is up 2.5 percent. This slowing in underlying inflation was echoed in the PCE prices data. Notably, the market-based core PCE measure rose 1.4 percent and is trending at a three-month annualized growth rate of 0.8 percent, compared to its year-over-year rate of 1.7 percent. [2012-01-09]