01 June 2009

Economics Update

The OECD has released its GDP figures for the 1st quarter, and they are not good, down 2.1% for the quarter, and down 4.2%year over year.

Also, consumers in the US are continuing to explore the paradox of thrift, with consumption down and savings up, even though there was a bump in income.

Of course, the financial press is optimistic on the fact that the ISM manufacturing index is the highest it has been in 9 months, only the number, 42.8, still signals further contraction, but for the financial press, the fact that the 2nd derivative is up means that prosperity is just around the corner.

The Wall Street Journal is selling the fact that corporate profits rose for the 1st time in two years in the same way.

Personally, I'm more concerned about signs of increasing interest rates and inflation, like the recent surge in 10-year treasuries, and the fact that retail gasoline broke $2.50/gal nationally this weekend.

With oil breaking $68/bbl, even a long time in the doldrums is going to have energy prices rising.

Still the traders are optimistic, which is why the dollar fell to its lowest level this year, there is less demand for a safe haven.

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