Econ update

Bad news was reveled in the consumer confidence numbers that came out a week or so ago.  Consumer confidence sank to the lowest level in nearly a decade. Many feel that it’s only a matter of time before the gloom translates into a drop in spending.  The Conference Board, a private business research group, said confidence fell for the third month in a row.

Also a series of downbeat U.S. economic data reflecting higher-than-expected wholesale inflation, a record U.S. trade deficit, and higher weekly jobless claims played with the market.  Additionally, a report from the Federal Reserve Bank of Philadelphia reported a steeper-than-expected drop in business conditions. The report pointed to a sharp manufacturing slowdown in the mid-Atlantic region, and dampened prospects for a rebound at factories nationwide. It said its index of business conditions fell to 2.3 in February, from 11.2 in January, though it still pointed to an expanding regional manufacturing sector. (a reading above zero indicates growth)

In other economic news, the government said the U.S. trade deficit unexpectedly jumped 10.6 percent in December to a record $44.2 billion. The gap, due to rising imports and falling exports, far exceeded the $38.80 billion estimate. A second report showed prices paid to U.S. producers in January soared at their fastest pace in more than a decade, pushed up in part by rising energy costs and showing more evidence of inflation in the economy than expected.

All of this amounts to considerable concerns about the economy.  But are they really justified?  If we compare to the first Gulf War, we find we are in pretty good shape.  Inflation is about 4.0 percentage points lower than in 1990. The jobless rate in December 1990 was 6.4 percent, versus 5.7 percent in January 2003. Thirty-year mortgage rates are below 6.0 percent now, compared with 9.7 percent in late 1990.  Not to mention the stock market is still significantly above the 1990 levels.

So is it possible that our expectations have changed for what we consider a good economy?  Do we need to see the stock market rise to all time highs before we feel the economy is really clicking?  Or maybe more importantly, do you ever really know how good you have it until you lose it?

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