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More Detail on What Is Happening in the Economy

By August 10, 2023Commentary

Today’s inflation report was “mixed”, as it showed higher inflation in some areas than expected, coupled with a supposed lower core inflation.  But labor driven services costs continue to rise at a high rate.  As I have mentioned before, medical services (20% of the economy) inflation is measured in a completely goofy way and is just wrong, supposedly medical prices were actually lower this month.  I can assure you that did not happen.  Both medical service and health insurance prices are rising at a good clip.

More importantly, here is some detail on the sources of funds available to consumers to spend, and retail spending accounts for a mammoth two-thirds of economic activity.  You can see that all the federal spending during the epidemic boosted savings, which subsequently are being spent.  Retail sales have been far above the trend line.  All those epidemic funds that flowed down to consumers have largely been spent, and now interest rates on credit cards are extremely high, over 20% in many cases, and consumers are relying more on them to sustain the spending pace.  The cumulative effect of the last two years of inflation is taking a toll as well, as consumers must spend more to buy the same amount of goods and services.  Income has not grown as fast as inflation.  The end result is that we appear to be on the cusp of a significant pullback in consumer spending.  So the demented economics of the current administration are about to hit the wall of reality.  (ZH Post)

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