The Commerce Department reported today that consumer spending was flagging in August. It declined for the first time since September 2005 (a time when Hurricane Katrina impacted economic activity). Inflation again reared its head as the core inflation rate (it excludes energy and food items) rose by 2.5% - the largest year-over-year increase in more than 10 years. While this inflation rate is considered to be above the Fed’s comfort zone, economists think the slowing economy will dampen inflationary pressures in the future – a further interest rate hike is thus not seen as likely at this time.

The debate whether the current economic slowdown will lead to a soft landing or an outright recession rages on. There are those who think the present decline in the housing market is strong enough to trigger a recession; others think the consumer will not be that adversely affected, because the job market is still strong, among other issues, and because oil prices are decreasing. A big decline in consumption would however signal danger, so today’s data caused some concern in the market.

Next week will see key economic data released on Monday (the national ISM manufacturing survey), Wednesday (factory orders and the ISM non-manufacturing index), and on Friday (non-farm payroll and associated data). In addition, Fed Chief Bernanke is scheduled to speak before the Economic Club of Washington on Wednesday).

© HGH Associated Press

News Archive (from 7/1/2006 until 9/30/2006)