SEARCH BLOG: ECONOMY
Yesterday at Econobrowser, Dr. James Hamilton posted an article about the declining Industrial Production Index which might have been overlooked in all of the concern about the Federal Reserve and inflation indicators. With the IPI showing a 6-month decline, even if slight, in output, the question was what that meant to the economy. His comment was:
Here's what I think:Here was my slightly longer comment:
With so many regional variances it is difficult to pinpoint the direction of the national economy based on industrial output, but for someone living in Michigan, the "dip" is more like "the bottom dropping out".
Last year saw more consumer spending than earnings, ergo, we dipped into savings.
Now with the housing markets getting soft to tanking and home prices following (down 10-15% here), depending on location, home owners can't feel too confident about dipping into their "equity"... especially with Dr. B's higher interest rates translating into more expensive borrowing. That translates into less spending and less industrial production.
Inflation is not really the big worry now. We took the hit with oil prices last year and that has rolled its way through product pricing. This year looks like energy prices will roughly parallel last year, so we shouldn't get another jolt there.
So, given business pullbacks, consumer pullbacks, higher rates of foreclosures, and a stubborn Fed chairman, yeah, we could be seeing some longer faces in the near future.
Meanwhile, Toyota could probably pick up Chrysler and Ford really cheaply right now. Or maybe Hyundai might be interested. Can you say "fire sale?"