The Weekend Economic Wrap Up

By February 25, 2007Economy

Business is UpSome reassuring news came out of the Labor Department this past week. On Wednesday, the consumer price index for January was released. It showed that consumer prices increased 0.2 percent. This is reassuring news after the 0.4 percent jump in December.

Aided by a 3.1 percent drop in energy prices over the past year, the overall CPI has increased just 2.1 percent in the last 12 months. This is reassuring news that the tightening labor market over the past several years has not accelerated inflation significant. Some of the reason for this is that energy prices have come down over the past six months. When taking out food and energy, “core” consumer prices are up a higher 2.7 percent over the past 12 months. There is little doubt that the tightening labor market has put some upward pressure on prices, but this appears to be modest. At this point it does not appear that inflationary concerns are a major concern.

Also last Wednesday, the Labor Department released its report on worker earnings for January. It showed that growth in hourly earnings matched the rise in inflation last month. As a result, real earnings held steady. On a positive note, real earnings is up a healthy 2.1 percent over the past 12 months. This should support solid growth in consumer spending this year, which is good news, considering that the downturn in housing has removed equity financing as a source of consumer spending.

Looking to the week ahead, consumer confidence comes out on Tuesday, followed by manufactured orders on Wednesday, and the ISM report on manufacturing on Thursday. These reports should give a good indication as to the direction of the economy in the first quarter of the year.