Thursday, December 15, 2005

CPI Plunge: Biggest in Over Fifty Years!

The proverbial bottom fell out from under consumer prices in the month of November, as a seasonally adjusted 0.6% decrease was reported by the Labor Department (PDF file). The uneducated consumer and researcher may look at this and become puzzled, but those who know see a tremendous figure that equates to the biggest drop in the Consumer Price Index (CPI) in fifty-six years.

According to the Bureau of Labor Statistics' (BLS) monthly release, the overall CPI dropped 0.6% in November bringing the trailing 12-month CPI increase down to 3.5%. This number beat economists' expectations of a
0.4% decrease based on the median of 70 forecasts, according to Bloomberg. The two major categorical decreases were in transportation and energy costs due to the drop in oil and natural gas prices last month. The respective price decreases are 4.8% and 8.0% thanks in large part to a 16% drop in the price of oil. All remaining expenditure categories, save one (a 0.6% increase in medical care costs), increased by less than 0.5%.

Another release this morning by the BLS was the Real Earnings News Release (PDF file) which reported a 0.6% rise in real average weekly earnings. This number comes from a 0.3% decrease in average weekly hours, offset by a 0.2% rise in average hourly earnings and a 0.8% drop in the unadjusted CPI-W (for urban wage earners and clerical workers). Combined with October's increase, real earnings have surged over one percent in the past two months following the adverse effects Katrina had on the entire American economy.

Furthermore, production increases are fueling the stellar economic growth we saw last quarter and expect in the final quarter of 2005. According to Bloomberg, "[T]he back-to-back gain in production was the biggest in eight years and the amount of factory capacity in use matched a five-year high, the Fed's report showed." Capacity utilization continues to surge toward its 32-year average of 81.0%, as it ended November only 0.8% off the mark.

With all the great news on the economic front, what are we hearing about? The trade deficit! A LexisNexis search of "trade deficit" in major papers resulted in over twenty articles in the last week. What is it with the MSM's propensity to report negativity and shelve the positivity? Whether it's Iraq, where they report on the deaths of every U.S. troop but fail to mention when their missions result in a 25-1 ratio of enemies killed, wounded and/or captured. Even when the economy is chugging along and on pace to end 2005 with falling prices and unemployment alongside increasing wages and productivity, the media is stuck on the trade deficit.

So negative is the news that conservative commentators like Larry Kudlow on his CNBC show almost had a heartattack when the New York Times came out with a positive take on the economy. Well folks, just be glad I'm here to divulge the good information when it happens.

BEWARE: The next MSM love story will be over the "loss" of benefits among large corporations like General Motors. Perhaps if corporations would scrap pensions and move to a 401K system with matching employer-contributions, they would see their profits go up and everything would be hunky-dory. The problem is that the unions would never give up "guaranteed" benefits and allow their clients' money to be put in "dangerous" stock portfolios.

The truth is, 401K's (like the one I own) typically earn 10% per year. Everything that you invest is taken out of your paycheck (pre-tax) and matched by the employer to the dollar. Basically, every employee doubles their investment and builds their own nest-egg month by month. This also reduces the burden on Social Security because fewer workers retire with little or no money invested.

But don't expect liberals to be happy with that course of action; it means fewer dollars given to their prescious IRS. Oh well, it's worth a shot ...

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