I'm confused. Perhaps someone on this list has the answer. Everyone who
has discussed the issues here seems to agree to the following:
1. Increase in energy cost will drive up food and other commodity
prices, which will reduce consumer spending.
2. Increased cost of personal transportation will reduce consumer spending.
3. The collapse of the housing market will reduce consumer spending.
4. The fed generated inflation will reduce consumer spending.
5. Loss of jobs will reduce consumer spending.
Consumer spending determines the profit of companies. So, why then is
the stock market going up?
Ed
Stephen A. Lawrence wrote:
The government office concerned with such things has predicted that oil
prices will average about $101/bbl this coming year, if I recall correctly.
Commodities traders don't seem to agree. As I write this, May crude oil
contracts are going for $116.82/bbl.
That's up $4 in the last four days.
Sorry if this seems boring or off topic, but I'm finding this run-up in
oil prices fascinating/horrifying. It's presumably driving the food
price problems, of course. And in turn, the oil price run-up is no
doubt driven in part by the nascent recovery in the U.S. stock market
(which may very well sputter again, of course, due in large part to the
run-up in oil prices).
Leading indicators blipped up in March, for the first time in months,
despite the stock market still being down. Ratios of coincident to
lagging and leading to lagging are still both down, though, for whatever
that's worth. Here's the text from the first page of the March leading
indicators report:
==========================
[begin quoted text]
• The leading index increased slightly in March, following five
consecutive monthly declines. Money
supply (real M2)*, index of supplier deliveries (vendor performance)
and the interest rate spread
made large positive contributions to the index this month, offsetting
the large negative contributions
from initial claims for unemployment insurance (inverted), building
permits and stock prices. During
the six-month period ending in March, the leading index declined 1.6
percent (a -3.3 percent annual
rate), and the weaknesses among its components have been very widespread.
• The coincident index also increased slightly in March, following a
decline in February. Industrial
production contributed positively to the index in March, more than
offsetting the decline in
employment. Despite this month’s gain, the six-month change in the
coincident index has fallen to -
0.1 percent (a -0.2 percent annual rate) from September 2007 to March
2008, down from 0.6
percent (about a 1.1 percent annual rate) in the six-month period
through December 2007. In
addition, the weaknesses among the coincident indicators have been very
widespread in recent
months. The lagging index continued to increase in March, and as a
result, the coincident to lagging
ratio continued to decrease for the third consecutive month.
• Since the middle of 2007, the leading index has been declining while
the coincident index, a measure
of current economic activity, has also deteriorated in recent months.
In addition, the weaknesses
have also become more widespread among the components of both indexes.
Meanwhile, real GDP
growth slowed substantially to 0.6 percent in the fourth quarter of
2007, down from 4.9 percent in
the third quarter and an average of 2.2 percent, annual rate, in the
first half of 2007. The current
behavior of the composite indexes suggests economic weakness is likely
to continue in the near term.
