National economic trends and indicators from the St. Louis Federal Reserve

Economy

Based on the information provided by the St. Louis Fed, the GDP indicators for the U.S. are as follows. The real GDP growth is at 3%. The trend for this indicator is upward, as it has increased steadily over the past four quarters. Real GDP growth was on a downward slide for all of 2010, however, bringing it to a very low level at the end of the year, which is a contributing factor in the economy being able to enjoy steady growth in 2011.

The consumer price index is currently at 0.3%. The general trend is flat, as only once in the past 10 quarters has the rate been above 0.4%, and only twice was it below 0.2%. While the CPI has fluctuated in the past two years, it has only done so within this narrow range.

Industrial production growth is at zero currently. The general trend is slightly declining, as there have been declines in the past three quarters. Large increases in industrial production have, over the past several years, been one month spikes, only to see the rate begin to slow over the next few months afterwards. There have been no trends of steadily increasing industrial production, only short spikes followed by steady decline in industrial production.

The interest rate measured by the St. Louis Fed is the 10-year Treasury rate, which currently sits just above 2%. This rate is generally decreasing, falling from a rate over 3.5% in early 2011. The current rate is just above the lowest level seen for this rate. The three-month Treasury rate is also provided on this graph. This is just above 0%, and has been for a while. The only reason it is not on a downward trend is because that would be impossible.

The change in nonfarm payrolls is somewhere in the 100,000 range. The trend is a three quarter decline in this figure, and the current level is relatively low compared with recent performance. The current range of nonfarm payroll growth is preferable, however, to the sharp declines this figure was recording throughout 2009.

The unemployment rate is currently around 8.2%. This is part of a long-term declining trend that began in late 2010. The absolute number is not very good, but the trend is towards improvement. The current unemployment rate is at its lowest since early 2009.

These trends indicate that the health of the economy is improving, albeit slowly. The lack of inflation is good, as is the declining unemployment rate. But the GDP trend is weak and it is difficult to find a significant trend in either the growth in industrial production or in the growth of nonfarm payrolls. For the economy to be considered healthy, these different indicators should be improving at once. Taken together, these factors signify that the economic recovery is ongoing, but lacks strength.

2. The economy is generally performing at moderately healthy level. Many indicators are sub-optimal, and some important macroeconomic indicators are mixed, showing little trend. The bright spots in the economy lie in the improvement in the unemployment rate, which is a long-running trend and in the slow but steady GDP growth. At present, interest rates are very low and yet there is no real sign of inflation, something that can be taken as a sign that current policy should be maintained. One does not want to see low CPI or interest rates without economic growth, nor does one want to see the CPI get out of hand. Let us not forget that some armchair economists in the political ranks predicted hyperinflation as the result of current economic policy -- the facts are clear that this has not happened and bears no serious risk of happening.

The current economic policy is geared towards growth, as indicated by the low rates on both short- and long-term government paper. Thus, it is expected that the growth of GDP should continue, as should improvements in the unemployment rate. Whether industrial production will improve is a different issue.

3. The next year will see more of the same trends continue. I see that the current economic policy is geared towards maintaining a high rate of growth, but the market signals are still more in line with the slower growth that we have seen recently. The industrial production is not expected to increase significantly, thought hopefully with sustained low rates this will pick up.

Nonfarm payrolls should see more growth this. The underlying economic conditions are relatively strong, and as a result it is expected that both unemployment and nonfarm payrolls will improve. The result of this should see the unemployment rate brought down to around 7% by year's end.

This growth, combined with low rates, is expected under most models to fuel inflation, which would then require corrective action in the form of interest rate increases. Faster-recovering economies like Canada have already entered a cycle of expected rate increases. It is expected that the CPI will increase significantly early in the year as the result of higher oil prices. These will trickle through the supply chain of firms to account for increases in the core CPI later in the year. As a result of this, we could see the CPI head towards 1%. Unfortunately, this will not reflect greater economic strength. Interest rates may remain low as long as CPI growth stays at reasonable levels.