Statistical Whiplash

By Andrew Paparozzi
In July 18, 2008

Just when all looked as bleak as can be—Fannie Mae and Freddie Mac on the verge of collapse, oil prices approaching $150 a barrel, and the Dow Jones Average skidding below 11,000—oil prices plunge to under $130 a barrel, some financial institutions report better than expected earnings, the stock market recoups some ground, and industrial production increases 0.5% in June. What are we to make of all this? Simply, the economy is not sinking into an insurmountable abyss, but very formidable challenges remain.

One of those challenges is inflation. Spurred by jumps in food and energy prices, the Consumer price Index (CPI) has risen 5.0% for the 12 months ending June 2008. Although at 2.4% the so-called “core CPI— which excludes food and energy— is up only half that, consumers are feeling the pinch as earnings are not keeping pace. The Producer Price Index (PPI) for finished goods shows a similar picture for the 12-month picture, spiking 9.2% overall and up 3.0% excluding food and energy. And just like consumers, producers are being squeezed by the rising costs. The weaker dollar definitely isn’t helping. Data from the Bureau of Labor Statistics show that in June non-petroleum import prices were up 7.3% above a year ago. In the previous 12 months they were up only 2.8%.

While the economy is facing challenges on inflation and other fronts, probably none is more formidable than maintaining confidence in our financial system. The problems at Fannie Mae and Freddie Mac, along with the collapse of IndyMac Bank in California are just the latest strains to appear. There could very well be others down the road. The economy will adjust and work its way through current difficulties, but to do so, a well functioning financial system is imperative.

Joseph Vincenzino

Andrew Paparozzi

Epicomm's Andrew Paparozzi, Vice President/Chief Economist, is well-known for his accurate and thoughtful discussions on the economy and US commercial printing industry. A foremost author and speaker on economic business trends in the printing industry, Paparozzi heads Epicomm's Printing Economic Research Center.

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