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National Economic Indicators

Adam Rust's picture

Posted May 24, 2010

The latest reports from the Federal Reserve Bank of Richmond and the Census Bureau are not that promising.

  • Inflation is flat. That reflects a stagnated economy.  Still, the reality might even be worse. The price of commodities has been soaring. The year-over-year change in the Commodity Research Bureau's Spot Commodity Price Index is 32.8 percent.
  • The talk about a return to savings is now just talk.  While the savings rate is not zero, the latest data reports that people are now saving less than they were during the height of the last boom. The national savings rate (share of income minus consumption/income) is less than 3 percent.  Moreover, the figures for 2004 are muted, because those numbers don't include the $3 per share dividend that Microsoft distributed to its shareholders at the end of that year. That event alone put $32 billion into the economy.
  • Less than 59 percent of workers are in the labor force.
  • One in seven housing units in the United States was vacant in the first quarter of 2010.

If these indicators are on the right track, then we should be skeptical of the prospects for a recovery in the near future. You would imagine that investors would notice, though. Prices for equities are very high, even after their most recent cooldown. I spoke with a mutual fund manager the other day, and his take was far from comforting. He said that he feels that investors do not really have any good choices to make. The demand for equities is largely because there is no incentive to hold cash.  Many of the bonds in the developed world are suddenly at risk.

So, is it another bubble?