As reported by the U.S. Bureau of Labor Statistics the consumer price index (CPI) was unchanged in January 2009 from January 2008, the first time in 53 years that prices did not rise on a year-over-year basis. “Core CPI”, which excludes food and energy costs, rose 1.7% in January 2009 from January 2008 following a 1.8% increase in December. January’s “headline” CPI represents the lowest annual inflation rate since August 1955, but the “core” rate suggests deflation is not yet evident.
Month-over-month, the “headline” CPI rose 0.3% in January, rebounding from a 0.8% decline in December. The monthly “core” rate of consumer inflation rose 0.2% in January.
Harmonic Investment Advisors sees significant benefits resulting from the decline in consumer prices. As suggested by the difference in “headline” and “core” inflation statistics, the decline in prices has primarily been due to declines in energy and food, two of the least discretionary purchases that consumers make. Indeed, the primary contributor to the decline in 2008 prices is the 75% drop in energy prices since oil’s mid-2008 peak. Reduced pressure on consumers supports Harmonic’s stance that the economy will remain sluggish over the coming months but that the strengthening consumer balance sheet, in the form of higher savings, provides a key to stabilization in the economy and stock markets.
Feb 27th
4Q08 “revised” Real Gross Domestic Product
Author: Kenn Lamson
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As reported by the Commerce Department the revised estimate of fourth quarter real Gross Domestic Product fell 6.2%, on an annualized basis, from the third quarter of 2008. This decrease was substantially larger than the consensus expectation for a -5.4% reading and followed a -0.5% posting for 3Q08. Today’s release marked the sharpest contraction in US economic growth since 1982. The -6.2% reading was made worse than consensus expectation by downward revisions from the month-ago advance GDP release in business inventories, consumer spending, foreign trade and residential fixed investment. Perhaps unsurprisingly, Federal government spending posted a positive contribution. Excluding the effect of inflation, the US economy contracted at a 5.8% annual rate.
For the full year of 2008 real US output rose 1.1%, when exports and consumer spending, fueled by tax rebates, offset weakness in residential fixed investment and other areas.
As noted, today’s release was the “revised” figure that is based on more complete source data than the advance estimates issued last month. As with each Commerce Department GDP estimate, today’s release is subject to one additional revision, which is labeled as “final”.
Harmonic Investment Advisors believes that today’s GDP figure a more accurate reflection of the state of economic activity than the last month’s optimistically high “advance” release. However, as noted in earlier commentaries we anticipate that the US economy will remain in recession throughout this year and note that the economy has continued to weaken during the first quarter of 2009.