Again, incremental economic improvement

Several more economic indicators came in favorably this morning: the Consumer Price Index and initial jobless claims.

CPI:

In September the CPI rose just 0.2%.

Why this is important:
We have discussed before that a little inflation is good for an economy. Deflation creates an environment where people wait to make purchases because they know that things will be cheaper in the future. That drives the economy down as less stuff is purchased. As less stuff is purchased businesses slash prices to induce buying. And then consumers wait some more for lower prices. A vicious circle ensues. Ideally inflation is 0%, but that is like trying to balance an elephant on a razor’s edge – a little tricky. So tepid inflation eliminates the “let’s wait and see” attitude in consumers. So inflation near zero, but slightly positive is nearly ideal.

Initial Jobless Claims:
This statistic saw a decline of 10,000 to 514,000. The four-week moving average fell 9,000 to 531,500. The number of continuing claims fell by 75,000 to 5,992,000.

Why this is important:
The climb out of this recession is likely going to be slow and many posts have discussed why this is the case. The lagging indicator of a return to economic health is going to be the number of unemployed in the country. The reason that employment is a lagging indicator is because of the tremendous expense and long-term commitment required by businesses when hiring someone. There is the training, there are the salaries that have to be paid every month, and there are the benefits that have to be paid every month. So business has to be very good for a company to hire a new employee. So any positive change in initial jobless claims is welcome.

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Be well everyone!

Jason