January Retail Sales and Import and Export Prices

KEY DATA: Sales: +0.2%; Control: +0.6%/ Imports: -1.1%; Nonfuel: -0.2%; Exports: -0.8%; -1.1%

IN A NUTSHELL: “Atlas had nothing on the U.S. consumer, who continues to shoulder all the burden of growth in the country.”

WHAT IT MEANS: The markets are continuing on their merry wild mouse ride and investors continue to worry about oil and assorted international concerns. Meanwhile, back at the ranch, consumers are spending money as if nothing is wrong at all. On the surface, the January retail sales numbers don’t look particularly strong, but as usual, the details tell the real story. First, these data are not adjusted for price changes, so the declines in things such as gasoline enter as a negative. But gasoline prices fell more than sales, so its clear demand rose. The snow and cold weather led to strong demand for winter products and we ate in a lot as a result. Households started buying electronics again as well as general merchandise, so the rise in demand was fairly widespread. But maybe the best number was the so-called “control” group, which closely mirrors the consumption number in GDP and excludes gasoline, vehicles, building materials and food services, which rose strongly. We have started of the year with solid consumption of goods and with the weather turning cold, services demand could surge (utilities are part of the services number). And with consumer sentiment not getting crushed by the fall in stock prices, don’t be surprised if the solid household spending continues.

As for inflation, it still is being restrained by declines in import prices. Yes, energy costs are going down and where they go from here is anyone’s guess. The real issue is nonfuel costs. The January numbers were much less clear about the path of those goods. Imported food prices products jumped. While nonelectric capital goods costs were off, electrical equipment and non-vehicle transportation prices rose. Motor vehicles were up as were durable consumer goods. The details don’t say that all consumer imported goods prices are falling. As for exports, the farm sector continues to be hit by huge price declines.

MARKETS AND FED POLICY IMPLICATIONS: Janet Yellen testified in front of Congress this week and refused to bail out the stock markets. That, of course, set off a whole slew of market guru and big-investor invectives. They want the Fed to continue feeding the beast, as it did for years with quantitative easing. But the Fed wasn’t created to focus strictly on the markets: It’s U.S. economic growth that is job 1A. Today’s retail sales numbers don’t point to a recession coming any time soon. And the modest decline in the University of Michigan’s sentiment index also says that the average household has largely divorced itself from the markets. Why that surprises anyone is anyone’s guess. People have learned their lessons and appear to be looking long term. I cannot understand all the attacks on the Fed for raising rates only 25 basis points. Indeed, what kind of company would be crushed if the funds rate rose just one percentage point? Yes, there are growing risks, but their path is unclear. Anyone know where oil will be at the end of the year? If you do, tell me because I would like to by a beachfront home and retire. Basically, today’s retail sales numbers and the less than feared import price declines give the Fed some breathing room. Whether investors are buoyed by those reports, though, is anyone’s guess.

December Job Openings and January Small Business Optimism

KEY DATA: Openings: +261,000; Quits: +196,000/ Small Business Optimism: -1.3 points

IN A NUTSHELL: “If the labor market is tightening, can the economy really be faltering?”

WHAT IT MEANS: The stock market continues to gyrate wildly, but we can still take hope from the simple fact that we haven’t seen the real economy mirror the financial economy. The latest reports provide further indications that the labor market is still in good shape. The December Job Openings and Labor Turnover survey (JOLTS) shows just how Wall Street and Main Street are diverging. Unfilled positions surged in December to the second highest level on record. While hiring and separations were relatively balanced, the eye-opener was a jump in the number of people quitting their jobs. We are back to levels not seen since 2006, well before the recession began. That positions are hard to fill was reinforced by two other surveys. Yesterday, the Conference Board’s Employment Trends Index posted a nice gain, pointing further job growth going forward. Also, while the National Federation of Independent Business’s January survey showed that small business optimism is declining, the index measuring difficulty in filling positions rose to its highest level since the end of the recession. The NFIB members are concerned that business conditions and sales will not hold up going forward.  

MARKETS AND FED POLICY IMPLICATIONS: I have argued many times before, the key to the labor market is the willingness of people to leave positions, something they simply have not been doing since the onset of the Great Recession. That appears to have changed. Firms are going to have to start recognizing that they need to spend some money retaining their workers, especially since there are not that many people out there who need a new job. There are many who want a new position, and they can be lured away, but that means raising salaries. As firms raise salaries either to retain their workers or attract their workers, the pressure on margins and prices will only rise. Inflation is hardly an issue right now and with oil prices continuing to fall, the headline number will remain well below the Fed’s target for a while. But the members watch the JOLTS report closely as an indicator of future wage inflation, and given the quit rate level, it is flashing red. Nearly 2.9 million new positions were created last year and the unemployment rate dropped below 5% in January. Say what you want about discouraged workers, but when people are once again quitting, after having gone through the labor markets of the last seven years, that tells me those numbers accurately reflect what is going on. Fed Chair Yellen testifies in front of Congress on Wednesday and Thursday, so we will get some insights into her thinking about the economy. The latest labor market reports provide her with the ammunition needed to make a balanced presentation and keep her options open. Of course, investors are still following oil, so it is doubtful reports about the actual economy will make much of a difference.

January Employment Report and December Trade Deficit

KEY DATA: Payrolls: +151,000; Manufacturing: +29,000; Unemployment Rate: 4.9% (down 0.1 percentage point); Hourly Wages: +0.5%/ Trade Deficit: $1.1 billion wider

IN A NUTSHELL: “No, the sky is not falling and the labor market is not weakening as the details of the employment report were just fine.”

WHAT IT MEANS: Right after the January employment report was released, a certain business network’s website trumpeted: “Ugh, job growth is slowing now, too.” Please, give me a break. Is the headline number all that matters? No! It’s the details and they don’t tell me that labor market conditions have weakened at all. Let’s start with the disappointing employment gain. The largest decline, 38,500 workers, was in educational services, of all places. Really, is that anything other than a strange number? The second largest drop, 25,200, was in temporary help workers. If that is an indication that firms are trying to lock up their workers by moving temps to full time status, I have not problems with it. And finally, 14,400 messengers and couriers lost their jobs. Hey people, the delivery companies ramped up wildly to meet the growing holiday delivery demands, so a cut back was hardly surprising or likely repeatable. And are we really worried the government cut payrolls? Meanwhile, the job gains were spread across the economy and even in places where we didn’t think were strong. For example, there was a sharp rise in manufacturing, you know, the sector that is supposed to be in recession. Nearly 64% of the manufacturing industries posted job gains, so something good must be happening there. Hiring was strong in construction, health care, professional services, finance, retail trade and restaurants. Both high paying and low paying jobs are being created like crazy. There was a huge rise in the hourly wage. Major firms said they were raising wages on January 1st and some states increased the minimum wage. But wage gains are accelerating. Hours worked rose and weekly earnings increased sharply, hardly signs of a softening labor market. Let me make one other point. In March of last year, only 84,000 new jobs were added and the nattering nabobs of negativity, as I called them then, announced that the sky had fallen. Well, the total number of jobs added in 2015 was the largest since 1999. Enough said.

And then there was the unemployment rate, which fell to its lowest level since February 2008. The labor force participation rate continues to rise after bottoming last September. While the annual statistical changes make the 2015 and 2016 not strictly comparable, it appears that the labor force rose in January as well. These are all signs of a healthy labor market.

Another number was released today, the December trade deficit, though I doubt many people paid much attention to it. With the dollar rising, exports were expected to decline, and they did. Imports rose, another sign of a solid economy as well as cheaper foreign products.

MARKETS AND FED POLICY IMPLICATIONS: The Fed members are not business website headline writers. They take their time and digest the data and what they tasted was a pretty good meal. The job weakness came in places that were either odd or not surprising. The lower unemployment rate and rising wages further support the view that the labor market is doing nothing but tightening. Clearly, there are more uncertainties today than when they raised rates in December and hinted that there could be four increases this year. But the labor market is absolutely not one of them. Thus, investors will once again have to decide if a decent economy and higher interest rates is better than a weak economy and lower rates. I will take better growth and a Fed that is slowly raising rates anytime.

January NonManufacturing Activity, Private Sector Jobs and Help Wanted Online

KEY DATA: ISM (NonManufacturing): -2.3 points; Orders: -2.4 points; Hiring: -4.2 points/ ADP Jobs: +205,000/ Online Ads: +13,500

IN A NUTSHELL: “The new year hasn’t started off with a bang, but more like a whimper.”

WHAT IT MEANS: The first data for 2016 are trickling in and while the economy continues to expand, there are no signs it is accelerating. The Institute for Supply Management’s January reading on the nonmanufacturing portion of the economy was disappointing. Business activity decelerated sharply as orders grew at a slower pace than in December. As a consequence, hiring activity moderated as well. With order books filling slowly, it doesn’t look like we are in for any major acceleration in growth in this, the largest portion of the economy, anytime soon. The only unknown in this report is how much the blizzard hurt activity. As a consequence, we need to be careful in getting too down about the weakness. That said, on Monday, the January Supply Managers’ manufacturing index was released and while it was a little better than in December, it too pointed to sluggish growth.

This being the first week of the month, it means that Friday is Employment Friday. ADP released its estimate of January private sector job growth and it was better than expected. Payroll gains were solid and spread across companies of all sizes and in almost every industry. The only weak link appears to be manufacturing, which we also saw in the Supply Managers’ report. Still, after huge gains at the end of last year, expectations are that the January numbers would be a lot lower. This report suggest hiring should be less but decent nevertheless.

Speaking of the labor market, The Conference Board’s Help Wanted OnLine measure rose minimally in December. Labor demand picked up strongly in the Midwest and West, more moderately in the South, but declined in the Northeast. Again, it is not clear if weather played a role in the drop.

January motor vehicle sales were released this week and they were up despite the blizzard. The economy may be slowing, but people are once again in love with new vehicles.

MARKETS AND FED POLICY IMPLICATIONS: The latest economic news hasn’t been great and investors are getting whipsawed. We are seeing more questions about Chinese and even Japanese growth. So, where are we? As long as jobs are being created and incomes are rising, households will keep spending. And that is likely to be the case. Businesses may be turning cautious, but if they are linked into the domestic economy, they should continue to hire and invest, at least if they are not part of the energy complex. Basically, there are more uncertainties out there and that is likely to cause the Fed to be cautious in their drive to normalize. Both the January and February jobs report will be released before the next FOMC meeting, so let’s wait a while before we conclude a rate hike in March is off the table. However, the probability of it occurring at that meeting has slipped.

Fourth Quarter 2015 GDP and Employment Costs

KEY DATA: GDP: +0.7%; 2015: +2.4%; Private Domestic Spending: +1.8%; Consumption: +2.2%; Consumer Prices: +0.1%/ ECI (Year-over-Year): +2.0%; Wages and Salaries: +2.1%; Benefits: +1.7%

IN A NUTSHELL: “The warm winter and low energy prices hurt growth at the end of last year and that helped keep inflation and worker compensation costs down.”

WHAT IT MEANS: Boy did the economy decelerate at the end of 2015. But the modest fourth quarter expansion hides some decent details. For example, consumer spending was pretty decent. Given that the warm December meant a lot lower heating bills and very little reason to buy winter-related products such as sweaters or shovels, it was actually quite good. The recent blizzard probably caused some change in spending habits, at least here in the East. For all of 2015, consumption grew at the fastest pace in a decade. A drop in business investment in structures was another place where growth was restrained. But that was likely due to the massive cut back in energy activity. Where we go from here is anyone’s guess, but the cut backs were due to supply side factors, not a decline in demand. Firms also reduced inventories. That too was expected, as there had been some artificially high increases earlier in the year. We are close to more sustainable levels now. One place where there should be continued issues is the trade deficit, which expanded and reduced growth by about 0.5 percentage point. The strong dollar and weak world growth, coupled with a decent U.S. economy, point to a further deterioration in the trade situation. Final Sales to Private Domestic Purchases, a closely watched measure that removes inventory swings, the government and trade, increased decently, another sign that conditions are hardly dour. Growth for all of last year was the same as in 2014 – good but not great. On the inflation front, there wasn’t any. Consumer prices barely budged and the only component where prices rose even moderately, was housing.

A second report released today was the Employment Cost Index, which measures total compensation cost trends. Surprisingly, it was fairly tame at the end of last year. Wages and salaries, despite all that we heard, didn’t rise very much and benefits remain well under control. Of course, any measure that says wages are declining, yes going down, in the aircraft industry has to be taken with a bit of salt.

MARKETS AND FED POLICY IMPLICATIONS: Much will be made of the tepid growth coming into this year, but as usual, the looking just at the headline number as an indicator of the state of the economy would miss the more complex underlying trend. Consumers are spending and that should hold up given the 3.2% rise in disposable income in the fourth quarter. Business investment in equipment fell, but in only one major category, transportation equipment. But that came after huge increases the previous two quarters, so some giveback was not unlikely. And the rig issue is largely unrelated to U.S. economic activity, so we cannot determine where that will go this year. Putting it all together, growth was disappointing, but we clearly shouldn’t fear a recession is imminent, or even in the cards. Instead, a return of winter and some moderation in the energy sector cut backs should allow first quarter growth to be pretty solid. What needs to change if growth is to accelerate is labor compensation. If wages keep growing modestly, it is hard to see how the economy can grow rapidly. And that would make the Fed’s job even more difficult given the below-target inflation rate.

December Durable Goods Orders, Pending Home Sales and Weekly Jobless Claims

KEY DATA: Durables: -5.1%; Ex-Transportation: -1.2%; Capital Spending: -4.3%/ Pending Sales: +0.1%/ Claims: -16,000

IN A NUTSHELL: “Once again, manufacturing has assumed the role as the weakest link.”

WHAT IT MEANS: While the economy may be growing due to decent consumer spending and a fairly solid housing market, the strong dollar, low oil prices and uncertainties overseas have combined to crater the manufacturing sector. Durable goods orders fell sharply in December, marking the fourth decline in five months. That is not a good trend. Yes, the volatile aircraft industry was off sharply, but that doesn’t tell the whole story. Just about every major category recording a drop in demand. Indeed, only electrical equipment and appliances was up. The measure that best indicates business demand for capital spending fell significantly as well. Confidence in the corporate sector has faltered with the difficulties many firms are facing in international markets. With orders slowing, order books are thinning and that is not a good sign for future production.

On the housing front, the National Association for Realtors’ Pending Home Sales Index rose minimally in December. This is a leading indicator of existing sales that should close in the following couple of months. The warm December weather brought out buyers in the Northeast but nowhere else. The index has been slowly moving downward since July and that could signal a more moderate home sales increase this year than the 6.5% rise recorded in 2015. However, the biggest impediment seems to be supply and with prices continuing to rise, we could see more homes coming on the market in 2016.

Unemployment claims fell sharply last week after having moved upward during December and early January. That rise, which has occurred before, caused some pundits to claim the labor market was weakening. Well, it is not. The less volatile 4-week moving average has not moved up significantly and remains in a range that has persisted since last spring – and when adjusted for the size of the labor force it is still near historic lows.  

MARKETS AND FED POLICY IMPLICATIONS: The Fed says it will watch and weigh all incoming data to determine when the next rate hike will occur. Today’s numbers don’t argue for anything happening right away. Tomorrow we get the first reading on fourth quarter GDP and it is likely to disappoint. So, for the Fed to have some cover to move again in March or April, we need to get better data on the economy and inflation. Tomorrow, the fourth quarter Employment Cost Index is released. If that points to accelerating labor expenses, as I suspect it will, the focus of attention could move back to the labor market. Regardless, investors are fixated on oil and it will require some outsized economic numbers to change that.

January 26, 27 2016 FOMC Meeting

In a Nutshell: “Fed to Markets: It’s the economy, all of it, not just part of it and it’s not the financial markets.”

Rate Decision: Fed funds rate range maintained at 0.25% and 0.50%

Yes, even Central Bankers can learn their lessons. In September, the Fed seemingly backed off starting to raise rates because of financial and emerging market issues. The FOMC was blasted for taking its eye off the ball and the criticisms were well founded. Well, message received, though this time around, the financial markets were begging for the Fed to backpedal as rapidly as possible.

The statement released today kept rates stable, which no one thought was on the table anyway. But what people debated was whether the chaos in the financial markets and the uncertainty surrounding the Chinese economy would cause the FOMC to signal that a rate hike in March was off the table. In no way was that signal sent and I assume from the negative reaction in the markets, that message was received.

The statement was generally positive about the consumer, business investment and the labor market. Members continued to be concerned about inflation being below target but still believe it will “rise to 2 percent over the medium term as the transitory effects of declines in energy and import prices dissipate and the labor market strengthens further.” As for the rest of the world, it was not surprising that the “Committee is closely monitoring global economic and financial developments and is assessing their implications for the labor market and inflation, and for the balance of risks to the outlook.” That is, it’s a concern, but not yet a major concern.

As for future policy, about the only thing that may dissuade the members from raising rates at one of the next two meetings is a decline in inflation expectations. Inflation has been the dividing line in the discussions and though everyone voted for the statement, a deterioration in the medium term inflation outlook, which is not expected, could slow the pace of rate hikes.

To sum up, the Fed didn’t tell the markets that if they behave badly the Fed will come to the rescue. I have consistently said I expect the next rate hike to be in March and I am standing by that forecast. Nothing in today’s statement argues against that possibility.

(The next FOMC meeting is March 15-16, 2016.)

December New Home Sales and 4th Quarter Workforce Vitality

KEY DATA: Sales: +10.8%; Year-over-Year: +14.5%; Prices (Year-over-Year): -4.3%/ Workforce Vitality (Year-over-Year): +4%

IN A NUTSHELL: “It was a great year for housing and workers didn’t do that badly either.”

WHAT IT MEANS: Looking at the two feet of snow in my backyard makes it hard to remember the December record warm weather, but today’s new home sales number brings that back into my mind. Builders ended the year on a major high as new home sales surged in December. While the wonderful conditions helped, another factor may have been at work: Consumer desires for more reasonably priced units were being matched by supply. Indeed, there was a sharp drop in median prices. The share of homes sold in the middle market, $200,000 to $500,000 jumped from 64% to 68%. In the $500,000 and up segment, the share fell from 16% to 13%. Basically, homebuyers seem to be losing a little of their desire to own the big, expensive McMansions. In December, the large increase was driven increases in all regions, though the gain in the South was modest. For all of 2015, sales were up sharply despite a double-digit drop in the Northeast. Roughly 20% increases in the South and West led the way, while new home purchases rose modestly in the Midwest.

I often note that the hourly wage data are confusing. They have not been around long enough to determine a trend. Worse, they are averages that are affected by the type of hiring that occurs. For example, a firm may be raising wages for their continuing workers but if turnover brings in new workers at lower wages, the math tells us that wages may not be rising much. So, how do we really determine what is happening? ADP’s Workforce Vitality report fills in some of the gaps. The overall index rose strongly over the year, but what was eye opening were the wage numbers. Though overall wages rose 2.1% over the year, wages for full-time workers who stayed in their positions jumped 4.1%. Full-time workers who switched positions saw their wages increase 4.7%. In other words, the headline number hides the extent to which wage pressures have built. And with the unemployment rate likely to fall to 4.5% or even lower by the end of the year, those wage pressures will only build further.

MARKETS AND FED POLICY IMPLICATIONS: The Fed is meeting today and will issue a statement soon. Those who worry about the equity markets expect the FOMC to back off their rate increase plan. But the economic data are okay. Yes, fourth quarter growth looks like it was soft, but let’s look at the composition when it comes out on Friday. Housing is solid, the consumer is buying lots of vehicles and the job market is strong. The U.S. economy is still solid and outside the energy sphere of influence, it is very good. Excluding energy, inflation is slowly accelerating even with the strong dollar. And the pressure on wages will only add to the belief that inflation will move back up to normal rates, especially when the oil price declines end. But the markets are focused on oil and to the extent that falling energy prices lead to falling stock prices, the Fed will have to decide how much the financial economy trumps the real economy. That will be true not just in today’s statement, but in comments the members will make going forward. I believe they should stay the course, but that is not a consensus view.

January Consumer Confidence, NonManufacturing Activity and November Home Prices

KEY DATA: Confidence: +1.8 points; Philadelphia Fed NonManufacturing Index: -21.6 points; Case-Shiller Home Prices (Year-over-Year): +5.3%

IN A NUTSHELL: “The stock market is falling and with it business confidence, but to households, it’s full speed ahead.”

WHAT IT MEANS: I remarked last week that Wall Street and Main Street were operating in parallel universes and nothing says that more than today’s data. The equity markets wild ride has hardly hurt consumer confidence. Actually, the Conference Board’s index rose nicely in January, led by a solid increase in expectations. I guess people have learned that markets go up, they go down and sometimes they just go. The days of the retail investor watching the indices and reacting look to be long gone. The details of the report also don’t show that the market volatility is having much of an impact, at least on households. Current conditions were flat and while jobs weren’t as easy to get, they didn’t get any harder to find. And respondents expect the labor market and business conditions to improve going forward.

While households are shrugging off the market changes, business owners are worried. The Philadelphia Fed’s index of nonmanufacturing activity in the region cratered in January. But when respondents were asked about their own business, they didn’t think conditions had declined very much. Sales, orders and hiring all were up, though at a slower pace than in December. But looking forward, business owners were really concerned. Expectations fell sharply. Let’s see: Current firm business conditions were largely stable, orders kept growing and hiring continued yet respondents became fearful. Hmm. That seems likes an emotional not a business conditions change reaction.

As for the housing market, The S&P/Case-Shiller national home price index rose solidly in November and the increase over the year accelerated. Using the seasonally adjusted data, every one of the twenty markets shown posted an increase in prices between October and November. There remain wide variations in price increases. Washington, Chicago and Cleveland were in the 2% range but Portland, San Francisco and Denver were up double-digits. Basically, the housing market, as measured by prices, is in good shape and the more prices rise, the more homeowners have the equity to make a move. That is good news.  

MARKETS AND FED POLICY IMPLICATIONS: Hey market commentators: It isn’t all about stock prices! If consumers are becoming more confident while stock prices fall, guess what will happen when they start rising again? Households aren’t worried about the labor market so they will continue to spend and in an economy that is two-thirds consumer based, it is hard to see how growth will slow significantly. The decline in the equity markets will not change Fed policy if the real economy, led by the consumer, keeps expanding. Fourth quarter growth was probably disappointing, but the largest part of the negative effects of the decline in oil prices has likely been felt already. How much more can investment be cut back when it was cut to the bone in 2015? Meanwhile, consumers are beginning to believe the low energy prices might be here for a while and they should start spending that windfall. Going forward, the positive effects of low energy costs will start overwhelming the diminishing negative effects and the economy should do just fine. Barring a meltdown in either China or the equity markets, don’t expect much change in the Fed’s rate hike strategy. I don’t.

December Consumer Prices, Housing Starts and Real Earnings

KEY DATA: CPI: -0.1%; Excluding Energy: +0.1%/ Starts: -2.5%; 1-Family: -3.3%; Permits: -3.9%; 1-Family: +1.8%/ Real Earnings: +0.1%

IN A NUTSHELL: “The restraining influence from collapsing oil prices may continue for a while, but otherwise, inflation is increasing at a moderate pace.”

WHAT IT MEANS: While the equity markets focus intently on the ever-declining price of oil, the economy continues to move forward. Indeed, though the drop in energy costs has helped households but businesses, it has not slowed the rise in inflation. Consumer prices declined in December, but excluding energy, they were up once again. Over the year, household expenses, either just excluding energy or excluding food and energy, rose pretty much at the Fed’s target of 2%. Commodity prices remain soft but services, which are over 60% of consumer costs, are still on the rise. In December, it was cheaper to buy food in the stores, but eating out continued to cost more. And in a very surprising outcome, medical commodity expenses declined while medical services costs were up minimally. Even health insurance price increases were modest, though don’t tell that to either businesses or households.

Workers hourly earnings, adjusted for inflation, rose in December, largely due to the fall in inflation. The gain over the year was somewhat less than we had been seeing.

On the housing front, new construction activity moderated in December. This was a surprise since the warm weather was expected to provide a boost to housing starts. Even the details of the report were disappointing as the only gain was in multi-family activity in the Northeast. Single-family starts were down in every region. That said, housing permit requests have been outstripping starts for the past three months. We should see a pick up in construction going forward. For all of 2015, both housing starts and permit requests surged by double-digits. That clearly indicates the housing sector ramped up activity last year.

MARKETS AND FED POLICY IMPLICATIONS: Another down day for oil, another down day for stocks. So it goes. Except in the energy and energy-associated segments, the potentially negative economic implications of the falling oil prices have yet to be seen in the general economy. Housing may not be booming, but it is doing okay. Inflation hasn’t collapsed, at least if you exclude the energy price declines. So, what are we to make of things? Clearly, the Fed has to be concerned about the extent of the drop in equity prices. But the members have to separate the impacts that are related to sectoral or largely foreign issues from fundamental domestic growth concerns. The simple fact is that non-energy inflation is at the Fed’s target rate when you look at the Consumer Price Index. Also, the rate has been rising for the past year, during which oil prices have been cratering. The Fed’s preferred measure, the Personal Consumption Expenditure Index, is still running a below target, though. Until that changes – and the craziness in the oil market settles down – the members will continue to worry about inflation and growth. Still, though today’s reports don’t tell us the economy is booming along, they support the view that conditions are still good and inflation is not falling. That should put things in perspective, even if the equity markets’ wild mouse ride continues.

Linking the Economic Environment to Your Business Strategy