Inflation & Trade Patterns
The Growth in both output and employment decelerated during 2006. At this time, the increase of inflation had occurred. The increase of inflation was driven in part by a tightening labor market and in part by a significant jump in energy prices. Exhilarated inflation caused the Federal Reserve to push short-term interest rates upward by more then anticipated a year ago. The fundamental key to this unfolding drama is the American Consumer. From 2001 to 2005, at the end of the economic recession, consumption spending accounted for 78% of the increase in output, with spending on housing construction comprising another 13%. Throughout the past year, consumption has captivated pretty well, sweeping 70% of growth in the first three quaters of 2006. Expectation was arrived of this continuation in this basic pattern?"consumption at a level that is adequate to maintain forward momentum in spite of continuing declines in the housing sector." Inflation will considerate a little from 2006, with an assist from relative stability in energy prices. The consumer price index will increase about 3% in the upcoming year. The federal reserve will keep the federal funds rate at its current 5.25% for most of 2008. There may be some reduction late in the year but long-term rates, on the other hand, may increase somewhat.
"The total December exports of $144.3 billion and imports of $203.1 billion resulted in a goods and services deficit of $58.8 billion, down from $63.1 billion in November. In December, the goods deficit decreased $4.6 billion from November to $68.2 billion, and the services surplus decreased $0.2 billion to $9.5 billion. Exports of goods increased $2.3 billion to $103.1 billion, and imports of goods decreased $2.3 billion to $171.3 billio ...