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Spending Confidence

January 16, 2013 – 6:03 pm

manage-risk-stock-market-200X200With inflation reports out this week in the form of the CPI and PPI releases there is no hint of inflation that the FED would react to. Year over year inflation is running at 1.7% when last year it was 3%. This is the lowest inflation rate we have had in the last 10 years. The fall in inflation last month was due to lower oil and food prices.

Oil and food are items every family in the U.S. has to spend money on every month and as we all know the consumer is the driver of our economy. When less money is spent on food, energy and housing that leaves more of every paycheck to buy other things. Maybe that is why we saw retail sales rise by a surprising .5% in December. People had extra money in their pocket. This rise was surprising because the consumer spent less on gasoline and food and we still had a strong rise in spending overall. It must mean the consumer is confident. That is a very good thing.

The flip side is now we have higher taxes. That will slow spending as it takes money out of the consumer’s pocket. Tax increases are never a net positive to the economy but with consumers feeling flush it might have little impact at least in the short run. Now if we can get the corporations to spend, as they are hinting at, maybe we can grow jobs. A virtuous cycle of spending and job creating would be nice for a change.

Good Trading
Steve Peasley

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