Friday, October 1, 2010

Economic Signs: Entering Q4 2010

Let us start with the savings rate. It is averaging at 6% with a small drop up from 1% in July 2005. Savings is generally a positive factor here with an appropriate comment regarding it from Rowe.

Now total savings is shown below and we are running at $700 B as compared to $100 B five years ago, and this provides both an added buffer in the economy plus the added capital for banks given the increased reserve requirements. Imagine what would have happened with increased reserve requirements with lowered savings. However the increase in savings in face of the de minimus return bodes well for low inflation expectations at least for now.

The income is shown above. There is a concern that it is not growing and this is mostly reflective of the unemployment situation and yet that will drive down tax receipts and drive up unemployment, which however is allegedly an insurance payment and not an added tax burden, yet we all know politicians.

The main problem is Federal Consumption which continues to grow at 7% annual rate unabated as shown below:

It has grown almost 50% in five years! This is a major problem which the current Administration is most at fault over.

The CPI however is growing at a very low rate as we show below. Yet this is due to oil price stabilization due to the drop in global demand as a result of the world economic problems. Our concern is that could change on a dime.

Finally the ISM, manufacturing data shows some signs of concern which need watching. Shown below is the ISM Total and New Orders. We see the Total on the upswing and new orders on the down swing. The downswing is a trend and that is a concern.

Q4 should be a telling Quarter regarding how we look at 2011.