Short Notes On Economy And Inflation

Economy

Chart 1

Chart 2

The Real GDP continues its uptrend since bottoming in Feb-2009 (Chart 1). The Total Employment and Real Retail and Food Services Sales have also maintained their uptrend during this period. The Unemployment Rate has maintained down trend.

Industrial production rose from Jun-2009 to Dec-2014. It then declined till Mar-2016. Since then it has resumed the uptrend.

The year-over-year change in the Retail Sales and Food Services ha been positive since Dec-2009 (Chart 2). It briefly dipping in Feb-2014 to 0.6% and then rose to +0.4.3% in Jan-2015. Since then it has mostly stayed within a range between 2.9% and 1.15%. The Leading Index has also stayed within a similar range. The Industrial Production contracted, year-over-year, from May-2015 to Nov-2016. Since then it has been expanding.

The bottom line is that the U.S. Economy is moving along, albeit, at a slower pace.

10-Year Treasury – 2-Year-Treasury Spread

Chart 3

The yield spread between 10-year U.S. Treasury Note 2-year U.S. Treasury Note has been declining since early 2014. It is approaching the lowest level since late 2007 that it reached in July 2016. Historically, as we note in January 2017, it becomes negative few months before the onset of any recession in the U.S.A. Its current level tells us that there is no danger of recession over next 12-15 months.

Inflation Is Subdued

Chart 4

Core Consumer Price Index was 1.7% in June 2017 (Chart 4). From June 20912 to Dec 2014, it mostly declined from 2.2% to 1.,6%. Then it moved up to 2.3% by Feb 2016. Since then it has been generally moving down.

University of Michigan Inflation Expectation, 5-Year, 5-Year Forward Inflation Expectation Rate and 10-Year Breakeven Inflation Rate are in a down trend since 2013.

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