Half way through 2006: How is the economy?
Here are 6 key economic variables at the 2006 halfway mark:
1. Second quarter GDP growth was 2.5%, down from the first quarter's above-trend rate of 5.6%. This is not likely a signal of more to come, but instead is reflecting the Q1 / Q2 up/down volatility.
2. Following several years of positive GDP contributions from the housing sector, residential fixed investment declined in the first half of 2006. This is not likely to change in the second half of 2006, but should recover in early 2007. The midwest and many areas in the south have not appreciated much over the last 5 years and the nationally reported numbers will not stay below water long.
3. Consumer revolving credit growth increased significantly in the second quarter, following several years of nominal growth. Early indicators suggest that consumers are shifting to greater usage of credit cards as the draw-down of home equity slows. These numbers are highly volatile, and it is always difficult to predict which way the trend is moving.
4. Average monthly job growth has slowed to 112,000 in the past four months, following average gains of nearly 170,000 over the previous twelve months. The job market still remains favorable, with unemployment at a 5 year low of 4.6% in June (though had a slight uptick in July).
5. Inflation is rising, with the annual CPI up 4.1% and the core rate up 2.7% in July. Rising energy prices have been the primary cause, but an upward trend in the core rate suggests wider price pressures. While the market is rejoicing over these "low" July numbers, I would suggest holding out until at least August before declaring a trend.
6. Productivity slowed significantly to 1.1% in the second quarter, while unit labor costs rose 4.2%. Declining productivity and rising labor costs raise the risk of wage-based inflation.
1. Second quarter GDP growth was 2.5%, down from the first quarter's above-trend rate of 5.6%. This is not likely a signal of more to come, but instead is reflecting the Q1 / Q2 up/down volatility.
2. Following several years of positive GDP contributions from the housing sector, residential fixed investment declined in the first half of 2006. This is not likely to change in the second half of 2006, but should recover in early 2007. The midwest and many areas in the south have not appreciated much over the last 5 years and the nationally reported numbers will not stay below water long.
3. Consumer revolving credit growth increased significantly in the second quarter, following several years of nominal growth. Early indicators suggest that consumers are shifting to greater usage of credit cards as the draw-down of home equity slows. These numbers are highly volatile, and it is always difficult to predict which way the trend is moving.
4. Average monthly job growth has slowed to 112,000 in the past four months, following average gains of nearly 170,000 over the previous twelve months. The job market still remains favorable, with unemployment at a 5 year low of 4.6% in June (though had a slight uptick in July).
5. Inflation is rising, with the annual CPI up 4.1% and the core rate up 2.7% in July. Rising energy prices have been the primary cause, but an upward trend in the core rate suggests wider price pressures. While the market is rejoicing over these "low" July numbers, I would suggest holding out until at least August before declaring a trend.
6. Productivity slowed significantly to 1.1% in the second quarter, while unit labor costs rose 4.2%. Declining productivity and rising labor costs raise the risk of wage-based inflation.
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