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... e at times. They are highly volatile meaning that the retail sales report has a strong tendency, if not potential, to provide major surprises. The Consumer Confidence Index is an important economic indicator because it measures the level of confidence in the American consumer in each household. However, these surveys might not be reliable because times and situations of the American consumer can change dramatically. If consumers are concerned about job security, economic conditions, or personal finances, they are prone to spend less and this can cause disinflation and even deflation.
Alternatively, if consumers have a good feeling about the economy, the opposite effect will occur. The University of Michigan Sentiment Index is another name for the CCI. This index is derived monthly from a telephone survey of about 500 consumers. Michigan takes the percent of respondents that report better conditions, subtracts the percent that say conditions are worse, and adds 100. Preliminary results are released about two weeks after month-end, with final results available on the last Friday of the month. Predictions for the economic future via interpretation of economic data The CPI for April increased seven-tenths of a percent, the highest in eight and a half years.
This indicates inflationary pressure because it means that the prices of important consumer items like the price of milk or gasoline went up. Inflation is unhealthy for the economy because a short, fast spurt in the economy might cause the value of the dollar to decrease. This means that the same dollar able to buy a pack of bubble gum prior to inflation will not be able to after the inflation sets in. As prices rise, wages remain constant or even decrease, which would mean a rise in unemployment and inflation would cause higher interest rates and destroy the initiatives of entrepreneurs. The Federal Reserve chairman announced that it would seek to raise interest rates and the meeting would be at the end of this month. The Fed might decide to raise interest rates and this tight monetary policy might hurt the bond market.
Alan Greenspan is expected to testify before Congress and state the health of the economy. If during his testimonial he reports about tightening monetary policy, one can expect highly that he would persuade the Board of Governors to vote his way. If interest rates rise, than unemployment might rise as well as the owners might be trying to cut down on wages. The rich, upper classes desire higher unemployment because then interest rates fall and the money they have in stock markets increase due to more economic growth.
According to the data, the CPI has gone up a full 1. 2 points in April 1999. One must realize that in a range from the CPI of January 1997 and March 1999, the CPI never jumped over. 5 points. It was on April that the CPI leaped 1. 2 points and increased seven-tenths of a percent, dangerously high and on the verge of inflating our economy. From the January 1997 CPI to the April 1999 CPI, the average has been 162. 225. The April 1999 CPI was 166. 2, which is 3. 975 higher than the average from January 1997 and including April 1999.
Therefore, our groups conviction is that the CPI indicates inflationary pressure and the move toward higher interest rates should be accelerated. The fact that the economy is enjoying the lowest unemployment in decades should be sufficient for economic analysts to predict a resurgence in inflation. However, the recent May 1999 unemployment rate, along with the March 1999 unemployment rate, had been the lowest since the beginning of the fiscal year of 1997. If thats not cogent enough, the average percentage of the unemployment rate from the beginning of 1997 to May 1999 was about 4. 64.
The May 1999 unemployment percentage is 4. 2. Low unemployment means higher risk of inflation. The mode seems to be 4. 5 and the median to be 4. 6. The wealth effect and the Phillips curve hypothesize that low unemployment means higher inflation. Therefore, the unemployment statistics reveal that inflation is eminent sometime soon in the near future. The statistical analysis for the GDP is rather subtle because one should not only measure the billions of chained dollars (nominal GDP) starting from the beginning of 1997 but also the percent change.
The rise in the US GDP has been a steady growth from the first quarter of 1997 to the first quarter of 1999, ranging from 7166. 7 billions of chained dollars to 7754. 7 billions of chained dollars. This means healthy growth of the US economic cell until the first quarter of 1998, where the percent increase in GDP was 5. 5 percent, and the fourth quarter, where the percent increase in GDP was 6 percent. I mean it really doesnt take a rocket scientist to find out that the growth was a malignant tumor! In other words, the rapid growth of the first and fourth quarters of 1998 means that inflation might manifest.
I say might because the GDP analysis wasnt really that thorough and there might be a slight chance that I am overreacting. However, my theory in GDP inflation is that there might be a lag between the rapid growth of GDP and the resurgence of inflation. The high spending and splendid output of a nation at a particular time doesnt mean inflation right away. So, there might be a lag between the high GDP and inflation.
This lag could be short or relatively long but it will come to haunt the American consumer. That rapid growth of first and fourth quarters of 1998 means that the American consumer will soon enjoy the prosperity of the economy, which means easy money but inflation, like a ghost, will appear. As a poetic note to GDP, a good analogy, as pertaining to the lag and the American consumer, can be -- after the laughter, I guess comes the tears. Retail sales, which make up the C in GDP (Consumption) is a real significant indicator to track down the buying power of the consumer as well as checking on inflation.
Low retail sales mean slower inflation, less GDP growth, and lower interest rates. High retail sales mean that the opposite of what was mentioned above might be approaching. It seems that the economy now is heading toward faster inflation, more GDP growth, and higher interest rates because the retail sales growth rebounded in May after slowing in April. The buying power of the consumer has been steadily increasing so we can fear inflation on this one too. The retail sales on February 1999, as opposed to January 1999, seemed as if there was a high increase in retail sales in an abrupt manner that can be seen as an inflationary pressure warning. The rough increase of four billion dollars from January 1999 to February 1999 of buying power of the consumer can indicate inflationary pressures.
Finally, the CCI, measures the confidence of the consumer. Looking at the data, I am inclined to say that Americans are a moody people in consumer confidence. From the beginning of 1997 to May 1999, I would have to say the periods of high consumer confidence were more numerous than those that are not. High consumer confidence can also lead to inflation. We therefore believe that the expected rise in interest rates by the Fed is justified in the fact that it is for the sole purpose of preventing inflation and maintaining a healthy economy. Bibliography:
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Research essay sample on Consumer Confidence Interest Rates
