Carping

David Altig provides the information that the Inflation registered in February was functionally widespread increase across the spectrum of Goods used in the CPI basket, and volatile Goods actually held the composite rate down. This stands as serious, knowing that the Republican conservative choice of the BLS slants the basket towards a policy which ignores Price changes to a majority of Consumers (they not buying the rich basket of Goods), and who do injustice to the estimate of Consumer Service Price increases. The majority at least saved somewhat due to the decrease in Food and Fuel Costs, but will be hampered this month by returning high Pricing in these areas. The fact is that the CPI is highly likely to be adversely affected overall by these Goods in the months ahead.

Calculated Risk brings forth another argument stating that though nominal growth in Consumer Spending did increase an annualized 4%, real GDP increase will be only about an annualized 1–1.5%; this is important because it will not readily increase GDP at conformance rates with last Year. It is mentioned that this does not include consumer spending on Services-as stated, about 60% of all personal consumption expenditures. Here is the flaw in this argument, and I will attempt to explain why.

Consumption on Goods act as Competitive Goods to consumption of Services, and vice versa. Reexamination of the data will incite the suspicion there is a major split (because of the reduction of share of Food and Fuel) between Inflation rates on Consumer Goods, and Inflation rates on personal Services. Health Services are pushing an annualized 10% Inflation rate, and other supportive Services charges are beginning to reflect this drive to higher Prices. Consumption of Goods undoubtedly will decrease as Inflation runs rampant in the Services sector. The Goods sector remains much more responsive to Employment Layoffs, and far more likely to generate Employment Layoffs, than is the Services sector. Layoffs are more likely because of the Retail Overhead Costs, and Consumer Purchase patterns generally fall after the payment of immediate Service need Costs.

The expectation that nominal and real increases in Consumer consumption of Goods will continue at last Year’s rates seem unlikely. It even appears doubtful that the Service sector will continue to hire at consistent rates of the past year. The subprime mortgage debacle suggests that while Consumer Credit may not tighten, Consumer expenditures will cycle down closer to payment of Bills, with little adventurous assumption of new Credit. These considerations argue for a revision downward in real Consumer consumption practices, though nominal increases may remain. lgl