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July 30, 2010

Do we need another stimulus?

Although there have been some positive signs in the economy we still have big problems -- not the least of which is high unemployment. This has led some observers to say we need another government stimulus plan. Are they right?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds.

"Well ... this would actually, if we did, be the third. We had a $200 billion tax cut in 2008, and of course we had the $800 billion stimulus and tax cut in 2009.

"Now the argument for another stimulus plan is simply, the private sector isn't spending so we need to have the government spend money or else everything will sink down more.

"The argument against a stimulus plan is, eventually we have to pay for that plan -- probably with higher taxes. And there are some economists who think that that's what people are focusing on now and they are not spending money because they are expecting to have to pay higher taxes down the road.

"There is actually a third view ... that says that it really doesn't matter what we do because the government -- the economy -- is destined to grow very slowly as households are bringing down their debts that they built up over the last 30 years.

"So you really have those three views, and it is going to be interesting to see how they pan out in the near term."

Posted by deeshore at 08:31 AM | Comments (0)

July 29, 2010

Controlling gas prices

Many people would like to see gas prices controlled by either federal or state government. They think gas prices are too vital to most household budgets to allow them to go to lofty levels. What would be the economics of such an idea?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, the first thing people need to remember when they go to the gas station to buy gas and see a price they don't like is don't blame that gas station operator. Ultimately the price of gas is based on the price of oil. And so what is happening in the oil market in terms of prices always shows up at the gas pump maybe two or three weeks later.

"Now if you were to have a control always on gas prices the concern that economists have always expressed is that if you set gas prices under what the market would indicate, then you can run into shortages. And we actually saw some of that in North Carolina a couple of years ago.

"And if you remember ... and I think you do because we are the same age, in the 1970s we had a form, if you will, of gas price control in the U.S. and we did have shortages. In fact one way the government solved the shortage problem was to have odd/even days for buying gasoline based on the digit of your license plate. You couldn't buy gas whenever you wanted to.

"And so economics point out that could be a cost of permanently controlling gas prices -- that gas would not be as plentiful, especially when there were problems in the oil market. And number two, you couldn't always get it when you want it."

Posted by deeshore at 09:40 AM | Comments (0)

July 28, 2010

We're not last in saving

One thing American households haven't done well in recent decades is save money. For a while the personal saving rate in the United States was zero. But many things have changed since the recession. Where do we rank now on putting money aside for the future?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well ... we are doing better. In fact, the savings rate over the last couple of years has edged up to between 3.5 and 5 percent. Also if you look internationally we are certainly not at the top, but we are no longer at the bottom.

"If you look at who is at the top, China still leads the pack: 38 percent of income earned in China by their households is saved -- 38 percent. India also has a very high saving rate at 35 percent.

"But we are not last. Again we are between 3.5 and 5 percent. Japan -- for a long time, Japan was a very high saving rate country. Now they are a low rate. They are around 3 percent right now.

"And at the bottom currently is Australia. Australian households currently save at the rate of only 2.5 percent."

Posted by deeshore at 08:37 AM | Comments (0)

July 27, 2010

Where does the money come from?

Some people are calling for a second federal stimulus plan to help the economy. But wouldn't borrowing money for more government spending simply cause private spending to fall resulting in a no-net effect on the economy?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, this is the issue that economists call crowding out. And it is used by those who argue against federal government spending to help the economy. And the real question is, as you phrase it, ... well, where does the money come from when the government does have a stimulus plan and they don't have the tax revenues to support it?

"Well, obviously the government has to go borrow the money. Now is it a matter that that money is immediately taken out of private hands, which would have been spent anyway? Well, maybe and maybe not. Some of it could, but there also are other sources of money: In fact, there are about three.

"One obvious way is for the federal government to borrow from foreign lenders. And in fact we have done that: About half of the money that has been borrowed by our federal government over the last couple of years has been borrowed from foreign lenders.

"A second way is for the federal government to borrow money in our country that we would say is idle. Cash -- people that have a lot of cash around sort of keeping it in their sock drawer or in their safety deposit box -- if the federal government can borrow that then obviously that's not taking those funds away from any other investment.

"And then lastly the federal government can effectively borrow money by having the Federal Reserve print the money. So the Federal Reserve prints the money, and then that money is either used directly by the Federal Reserve or when the money gets into the private sector it is used by private people to buy the government bonds.

"So those are three ways that the federal government can raise money. Now they all have long-run implications, many of which we are now worrying about today."

Posted by deeshore at 08:27 AM | Comments (0)

July 26, 2010

China's currency move

Recently China indicated it would let the value of its currency fluctuate more frequently. Why did this happen? And what impact will it have in the United States?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"This actually could be very important. ... China, as most people know, runs a big trade surplus. That is to say, they sell a lot of products and goods to other countries like the U.S., and we sell some back to them but not nearly as much. And other countries think, rightly or wrongly, that this takes jobs away from them. And so China has been under pressure to do something about this, or else they may face what we call trade sanctions -- ... other countries saying, 'Hey, we are going to make it harder for you China to sell products in our country.'

"What China did with their currency by allowing it to fluctuate is that this will likely mean China's currency, the yuan, will actually go up in value against other currencies. Now what that will mean is it will make Chinese exports like to the U.S. more expensive. So things that are made in China and sold here in the U.S. will become more expensive, so we will likely buy less of them. And it will also make our exports to China less expensive for the Chinese to buy. So this should result in a slightly lower trade deficit from our perspective with China. Now it is not going to wipe it out, but it will likely be lower. Economists disagree on to what degree that trade deficit will get smaller. But this in some eyes is a step in the right direction for China to simply allow its currency to seek its own competitive value because before that they actually controlled directly that level."

Posted by deeshore at 08:36 AM | Comments (0)

July 23, 2010

Income mobility

When we talk about rich, middle-income and poor households, we discuss them in a static way: We often assume rich stay rich, middle-class people are always middle class and the poor remain poor. But is this a good assumption?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Actually ... it is not. In fact, there has been a lot of research by economists over the years that suggest there is a lot of what we call income mobility -- rich people sliding out of the rich category into the middle income, or poor and middle income going up to rich and poor people going up to middle income, etc.

"We actually now have a new study among these series of studies that looked at household income mobility from 1999 to 2007 and drew the same conclusion. In fact, let me give you some numbers: What this study found is that 60 percent of poor households actually moved up the income ladder over this time period. Forty percent of rich households moved down the income ladder. And when you looked at all households in total, 60 percent of households changed income status sometime during that eight years.

"So really we have a very dynamic economy in terms of people's incomes, and one implication of this is for public policy, because if you are targeting a certain group of households to be helped by public policy, that same group may not be there several years down the road."

Posted by deeshore at 08:18 AM | Comments (0)

July 22, 2010

Is a double dip coming?

Although the economy has improved, some recent numbers suggest a slowdown. For example, the broadest measure of economic growth was cut by .5 percent in its final revision. So could we be headed into another recession?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"I think it is useful in answering this question to think of the economy as a car, and when that car goes in reverse -- goes backwards -- then we would say we have a recession. When the car is moving forward, we say we are not in a recession but we are in an economic growth situation.

"The economic car has actually been moving forward over the last six months at a fair rate of speed -- let's say 50 miles an hour.

"What I think the indicators are suggesting now is that in the coming months that rate of speed is going to go down. Maybe we will only move forward at 20 or 30 miles an hour. That still means we are not in a recession, but it means we are growing at a slower pace. And actually if you look at economic forecasts that were made about a year ago, that was suggested by many of these forecasters -- that we would have a burst of growth right after the recession ended, and then we would go back into much slower growth.

"And by slower growth, I mean about 2 to 2.5 percent -- just enough to nudge the unemployment rate down a smidgen each month but not anything to cause that rate to plunge. And I think that's the type of situation that we are in. We are in a sluggish economy. We are growing, but an agonizingly slow pace of growth."

Posted by deeshore at 08:38 AM | Comments (0)

July 21, 2010

Who's creating the jobs?

Jobs appear to be coming back, but the unemployment rate is still near 10 percent. Should those looking for jobs expect better luck with existing companies or new firms?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"When we look at past recoveries from recessions, typically during an economic recovery you get a lot of job growth from new firms -- sort of like new births: people out there starting new businesses, people going into new lines of work. ... And so if you are an unemployed worker, going to new firms would stand you a good chance at getting a new job.

"So far, this recession seems to be different. It has been different in so many ways, in that if you look at where the new jobs that have been created over the last six months are being created, it is mainly in existing firms not in new firms. So again if you are an unemployed worker now you have a better chance in getting a job if you go to an existing firm.

"And the reason why we are not getting job growth from new firms, we think, is because new firms are actually often small firms. They are small businesses. And it is still tough, very tough for a new small business to get a loan. And so we think that is holding back growth among new firms."

Posted by deeshore at 10:48 AM | Comments (0)

July 20, 2010

North Carolina economic leaders

Several measures suggest the economy has turned the corner. When we look at North Carolina, which sectors and regions have done the best?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Since last winter North Carolina has actually added jobs -- about 66,000 jobs -- and if we look at where those jobs have been created, we see a couple sectors really account for most of them: in particular, professional and business services; trade -- that would be wholesale and retail trade -- and a category that economists call information, which can include communications as well as some computer work.

"All of those have gained at fast rates in North Carolina and actually have gained jobs faster than at the national level.

"We do want to mention that the government sector also has increased in jobs. Most of that, though, in North Carolina -- and, in fact, the predominant part of that -- is in teachers.

"Now, in terms of regions in the state, again we have seen a turnaround in the economy. If you look at jobs in most of our state's regions, the Triangle though goes at the top, growing much, much faster than any other region, followed by Charlotte and Hickory.

"And at the bottom of the list, interestingly, Wilmington: Wilmington has gained jobs at a very slow pace, and I think that's because of issues still with the tourist industry and perhaps real estate on the coast."

Posted by deeshore at 09:00 AM | Comments (0)

July 19, 2010

Growth versus frugality

Economic policymakers in most countries, including the United States, are facing a trade off. Do they continue to support the struggling economy through more government spending, or do they cut spending and focus on reducing debt. Is there an easy answer?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"No, there is really not. ... And this question always comes up after we have been in a recession, because one of the standard policy prescriptions for a recession is for a government to step in and spend money. However, to do that they usually have to borrow money, so it is very typical during recessions for government debt to be built up. This recession has been no exception.

"But we all know that there are some negatives to larger government debt: There is a lot of evidence that suggests that larger government debt results in the economy growing more slowly. So at some point, government policymakers have to say, 'Alright. Is the economy strong enough to sort of pull it off life support from the government, let it go on its own and then let's now focus on getting the debt situation under control?'

"And it looks like we are at one of those crossroad decision points now. And as you might expect ... we have divided opinion depending on how you assess the economy and how you assess the risk of more government debt. Some say, 'No, the economy is not yet strong enough to be on its own.' Others say, 'Yes, it is and we need to focus more on debt.'

"There is not an easy answer to this, but it certainly is a very important question."

Posted by deeshore at 08:42 AM | Comments (0)

July 16, 2010

North Carolina's economic outlook

The summer version of the North Carolina economic outlook it out. Is it upbeat?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"I'd say modestly so. ... First of all, we always look back at where we have been, and it looks like most of the economic indicators are suggesting that the state economy hit a bottom last fall and since then we have trended upward.

"If you look at indicators like jobs, retail sales, income, even state tax revenues -- those have all trended upwards since last fall. However -- however -- they are still below pre-recessionary levels.

"So we have improved, but we certainly are not back to where we were before the state went into a recession.

"North Carolina has added jobs at a faster pace than the nation, which is typical although we are slower on private-sector jobs.

"Looking ahead I see continued improvement, but slow improvement. Probably the indicator that most people look at is the unemployment rate, and I am predicting that at the end of this year, 2010, North Carolina's unemployment rate will get down below 10 percent. It will hit about 9.5 percent, and in 2011 8.5 percent. So going in a good direction but still uncomfortably high."

Posted by deeshore at 09:30 AM | Comments (0)

July 15, 2010

The computer game industry

Some of today's computer games seem tremendous real and are easy to interact with. To the companies making and selling these games, are they more than just fun? Are they a big business?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Oh, very definitely. ... This is now a multibillion-dollar industry, and it is growing very rapidly. Every state wants a piece of this industry because, number one, it is a so called green industry that is it doesn't make a lot of demand on infrastructure and fuel, and secondly the salaries paid tend to be very high. So states are going after these firms, and here in North Carolina we have seen a lot of those companies locate around the Research Triangle Park area, one reason being that you obviously need college-educated workers to work in that area and obviously RTP has some.

"We are also seeing some of those firms locate around military bases because there are a lot of military applications to the games.

"So this is definitely a growth sector. It is a well sought after sector. And it is an economic sector where North Carolina is increasingly having a presence."

Posted by deeshore at 08:34 AM | Comments (0)

July 14, 2010

Fears of deflation

When most of us worry about prices, we are concerned about them going up -- that is, we are worried about inflation. But should we also fear the opposite: prices going down?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"It depends ... on the cause of the prices going down. That is to say that there is good deflation and there is bad deflation. Good deflation results when the falling prices come from businesses being able to manufacture something more efficiently. So, for example, if you look at the price of -- oh, let's say -- cell phones, they have actually come down quite a bit. And that's because cell phone manufacturers have gotten better at being able to produce them more efficiently. And so that is good deflation.

"Bad deflation, though, results from when prices are going down simply because people are not buying and a business simply wants to get rid of its inventory, so they drastically cut their prices in order to hope to move that inventory. And bad deflation is usually associated with a recession. In fact, last year in 2009, we actually had deflation for part of that year.

"The other reason it is bad is it is usually tied to wages and salaries going down. We actually saw that last year.

"And then finally, bad deflation makes the value of debts that people have -- because they pay those debts back in a set amount of dollars -- makes those debts more expensive."

Posted by deeshore at 10:39 AM | Comments (0)

July 13, 2010

A better economic indicator

Policy makers and economists are always looking for ways to better measure the economy. Usually measures such jobs, production and sales are used. Is there any other measure that might be a better summary of status of the economy for most people?

"There may be one, ... and it is called real disposable income. And what it is, it's a measure of the income that is available for people -- you and me -- to spend.

"Now let's break that term apart. Real simply means you take out inflation. So we do adjust those income numbers over time for inflation. And the disposable part means we are taking out taxes. So again, what this means is, using the same value of the dollar, what do people have to spend year after year after year?

"And if you look at that number, and you look at what's happened over the last couple of years with the recession, as people might expect it has actually gone down. People have not had as much to spend, once you take out taxes and once you take out inflation. And indeed it doesn't look like we are going to get back to that pre-recessionary level of real disposable income maybe until about a year to a year and a half from now.

"So this is simply another indicator we can throw into our toolbox of indicators to try to get a feeling of what people are really feeling economically speaking, and real disposable income does suggest that we still have some issues."

Posted by deeshore at 08:35 AM | Comments (0)

July 12, 2010

A new full employment rate

The definition of full U.S. employment has changed. It used to be associated with an unemployment rate of 5 percent. Then in the early 2000s, this was revised downward when unemployment fell below 4 percent. Where do economists think the full employment unemployment rate is today?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"What are we talking about here? Well, we are talking about an unemployment rate that is consistent with everyone who wants a job being able to get a job given the skills that they have. Or another way of looking at it is an unemployment rate that is consistent with the economy producing as much as it can at any point in time.

"And you are exactly right. When we were in school it was commonly thought that it was about 5 percent. In the 1990s and 2000s it went down to 4 percent. And now economists are looking at that again, and with our very, very high unemployment rate that has resulted as this recession, we are saying, 'Well, is it realistic to think that we could get down to 5 percent or 4 percent unemployment any time soon?'

"And some economists are saying no. They are saying that two things will impede this: One is that the set of skills that a lot of folks have -- the kinds of training they have -- are not consistent with the kinds of jobs that are going to be opening. So these folks are going to stay perpetually unemployed.

"And secondly the problems in the housing market have made it very difficult for a lot of folks to be able to sell their home and leave a region where, for example, unemployment is high to move to a region where unemployment is low. People aren't able to do that as well as they used to, and that is going to keep the full employment unemployment rate high.

"So what do economists think we could get down to? Well, the current thinking is maybe 6.5 to 7.5 percent unemployment is about as low as we can get in the near term."

Posted by deeshore at 08:54 AM | Comments (0)

July 09, 2010

Home values

With summer here and the housing market improving a little bit more, people are looking to sell their homes. Perhaps the most important factor in selling a home is the price. What factors go into setting the price of a house? Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"The biggest factor is what economists call the market. The market really determines what price you can get for your home. Unfortunately what a lot of people do is they say, 'Alright, I paid X dollars for my house, I should be able to get X plus Y dollars, because I put this that or the other in the house. I really like this house so someone else should be paying me a lot more than what I bought it for.'

"That's fine, but what happens is what if a buyer -- a potential buyer -- can go down the road and buy that house for X minus Y. Why would they pay X plus Y for you?

"The bottom line here is ... that you have to be smart about this. You have to, as a person pricing your home, look at what comparable homes in you neighborhood are selling for or have sold for and use that as a indicator for what you can get. Because if you don't, if you insist on pricing your home much higher, and say I am not going to take anything less than that. Yeah you can put it up for sale for that, but it is just going to sit and sit and sit.

"So you have to be very realistic and let the market -- the marketplace -- dictate what you can get."

Posted by deeshore at 09:59 AM | Comments (0)

July 08, 2010

Oil spill impact on North Carolina

The big Gulf oil spill will clearly impact tourism. Could the beaches and beach businesses in North Carolina feel some of these effects?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Certainly ... if the oil were to reach our beaches, it would be devastating. We have already seen big declines in tourism along the Fulf and Florida coast. I've seen some reports that business is off by 50, 60, 70 percent. And I think we could unfortunately have the same kind of impact here in North Carolina.

"And you have to remember that tourism in North Carolina is a big business. The latest numbers indicate that it accounts for $22 billion in income and over 350,000 jobs. So we will be actively watching where that oil goes.

"Now there is a flip side to this. If the oil stays away from North Carolina beaches and if the oil continues to harm the beaches in the gulf and Florida, North Carolina's beach business could actually see an increase because you could have a situation where someone wants to go to the beach for vacation. Maybe they normally go to the Gulf. They say, 'Well we are not going to go to the Gulf. Well, where can we go where the beaches are free of oil? North Carolina.

"So we could see some rebound, if you will, or some increase in our beach business if the oil stays away. So that is going to be the key. But hopefully -- hopefully -- that all this is cleared up very soon, and our fellow citizens in the Gulf and Florida see their businesses come back."

Posted by deeshore at 08:55 AM | Comments (0)

July 07, 2010

Hours worked

In gauging the progress of the economy most people focus on the labor market and jobs, and in measuring jobs we just count the number. But in simply counting the number of jobs, are we sometimes missing the bigger picture?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"We are ..., because obviously a business can increase its use of workers either by hiring more workers or taking the existing number of workers they have and working them longer hours. And, in fact, we have had a little bit of both going on in the economy. In fact, it is actually normal in the early stages of economic recovery for a business to work their existing workforce more hours and then only later add more people.

"A good example of the importance of focusing also on the number of hours worked is the employment report in May, which many people thought was very disappointing. We had about 40,000 net new private sector jobs created.

"However, what was unnoticed by many was that the work week expanded. People were working more hours. And, in fact, one of my colleagues calculated that if people were working the same number of hours in May as they did in April, we would have not had 40,000 new jobs created. We would have had about 350,000 new private sector jobs created.

"So that's why you really have to go beneath the surface of these statistics, and at this stage of the economic recovery tracking the average length of the work week is very important."

Posted by deeshore at 01:32 PM | Comments (0)

July 06, 2010

High-tech ratings

The high-tech industry has been one of the fastest growing economic sectors during the last quarter century. Every state wants high-tech jobs because they tend to be high paying. How does North Carolina rank in the race for high tech?

"Well ... Mary we have a new study just released from the U.S. Chamber of Commerce, and it shows North Carolina ranking very well -- in fact ranking in the top 10 states in terms of high tech. And of course we are known for the biggest private research park in the country, and that is the Research Triangle Park, that is the largest in the country, 40,000 full-time workers and almost $3 billion salary.

"And what this means is that North Carolina has for a long time been a leader in high tech. We also, however, are not resting on our laurels. We are actively recruiting more high-tech firms. In fact, we are again among the leaders among states in new high-tech business starts. And these business starts in high-tech are not only occurring around the RTP, they are also occurring in Charlotte, they are occurring in the east around ECU and Greenville, Wilmington, the Triad and the Foothills.

"So high-tech is very important to North Carolina. I think it will continue to be important and we are actively trying to expand that industry."

Posted by deeshore at 11:30 AM | Comments (0)

July 05, 2010

Good news on household wealth

We just received the latest report on household wealth from the Federal Reserve. Give us the highlights.

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"The recession really clobbered household wealth. In fact, household assets were down $16 trillion -- trillion -- at the height of the recession. Now the good news is that the numbers that we just got from the Federal Reserve for the first quarter of this year show that we have recovered -- we being households -- 6 trillion of that loss. So we are still down, but we are now down only $10 trillion only, rather than $16 trillion.

"At the same time households are continuing to pay down on their debt. In fact, households collectively have paid down almost half a trillion dollars of debt since the recession began, so household financial balance sheets are improving.

"There is a downside to this, though. ... That is, as households are paying down on debt and they are actually saving more money, their spending is not going to grow as fast. And we think that is the main reason why moving forward this economic recovery will be rather slow."

Posted by deeshore at 08:00 AM | Comments (0)

July 02, 2010

Is the economic recovery sputtering?

We recently received some bad news about the economy: Private sector jobs in May increased by only a very small amount. Also retail sales in May unexpectedly declined from their April levels. Does this mean the very fragile economic recovery is in danger of falling apart?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well no one knows exactly ... but I don't think so. And I think most economists would agree with me. If you look at what has happened this year, actually we have had a pretty good start to the year. Private sector jobs are up by a little over half a million in the nation this year. Retail sales are still -- even if you take that May number, retail sales are still -- 7 percent above what they were last year.

"So at this point we don't think the economy is beginning to fall backward. We think that we are still going to move forward, but the pace of growth may slow. In other words we may not get another half a million private-sector jobs in the second half of the year, and there are two reasons for that: One is that we had businesses build up inventories the first part of this year. They usually run inventories down during a recession. They have been building them up, and that inventory build up is about over and that has added to growth. And secondly I think consumers had inflation and recession fatigue. They were just tired of not spending money. And quite frankly when the Christmas season came and the beginning of the year came, consumers did go to the malls and shopping centers and spent. I think that that luster is off and that consumers are probably going to pull back a little bit. Not reduce their spending but simply let it grow at a slower rate.

"So I am still looking for economic growth for the rest of the year but probably at a more moderate pace."

Posted by deeshore at 08:47 AM | Comments (0)

July 01, 2010

Will inflation remain tame?

The latest numbers on inflation were quite good. Depending on the measure used, inflation is running between 1 and 2 percent annually. Yet some analysts have been sounding an inflation warning. Should we be worried?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"I don't think yet. ... I think two big factors will continue to keep inflation low: One is the very high unemployment rate. We are still going to see unemployment probably over 9 percent this year and maybe still 8 percent next year. What high unemployment obviously does is it keeps a lid on labor cost and labor cost being the most important factor for most businesses' total cost. That is going to keep inflation low.

"The second is business competition due to the recession and the slow recovery. Many retailers have very little pricing power -- meaning the ability to pass on higher prices to customers. Customers simply won't pay the higher prices, so analysts think that is going to keep a lid also on inflation.

"And I might throw a third factor in here: The Federal Reserve clearly has printed a lot of money. However, a lot of this money is sitting in the vaults of banks, and there is a thought that the Federal Reserve will pull that money back before it is able to be deployed. That will also keep inflation very low."

Posted by deeshore at 08:26 AM | Comments (0)