Saturday, December 15, 2007

Inflation vs. Unemployment v.4

This is an attempt to simplify some of the conclusions in my last post.

This chart shows the year over year annual CPI charted along with the unemployment rate. I have made no attempts to smooth the data.

This chart shows the conclusion of the previous analysis. There appears to be a 26 month lag between the two (actually 32 months if one factors in the inherent lag from the year over year calculation in the annual CPI growth).

The question we should probably be asking ourselves is what the Fed intends to do about the currently rising inflation rate. It is cutting interest rates at a time when history says it would have been prudent to do the opposite. We all know why they are though. The housing situation is in an awful mess and consumer spending is poor. Perhaps that alone will be enough to tame inflation. Time will tell.

In any event, if they are wrong the market will eventually do it for them anyway. While the interest rate on the one month treasury bill has plunged over the last two weeks (from 3.63% to 2.61%), the 30 year treasury bond rate has headed in the opposite direction (from 4.40% to 4.66%). Should those trends continue, it will add just that much more pressure for the already struggling housing market. Well, unless homebuyers only need to borrow money for 30 days that is.

See Also:
Inflation vs. Unemployment v.3
Inflation vs. Unemployment v.2
Inflation vs. Unemployment

Source Data:
St. Louis Fed: Civilian Unemployment Rate
St. Louis Fed: Consumer Price Index for All Urban Consumers: All Items
U.S. Treasury: Daily Treasury Yield Curve Rates
FRB: Selected Interest Rates


Anonymous said...


Phenom charts as always, it is quite interesting that seems to be a feature of the fiat era. Wondering about feedback loop on housing weakness, interest rate cuts, long bond rates, housing...

Aside, how do the latest west coast port stats look in your time series? Seems like outbound traffic continues to pick up, though I suspect distributional effects will make that less rosy than the aggregate statistics appear (widespread demand weakness, narrow export strength - how many CA homeowners in agribusiness?).

Anonymous said...

"Well, unless homebuyers only need to borrow money for 30 days that is." Return of the ballon payment.

Anonymous said...


The correlation since 1971 is obvious to my eye.

The majority in the U.S have jack didly squat in savings and huge fixed monthly costs. At this point, a recession and the resulting increase in unemployment is just scary.

Cutting rates while inflation is rising is the best of bad options it seems. Add in falling corporate profits and a housing bubble bursting and its pain city. Or as some call it "stagflation."

Those dimwits at the fed and congress should have been paying attention to the the distibution trends not just the aggegate trends. The devil is in the details.

Stagflationary Mark said...


Thanks for reminding me of the west port trade. The latest figures are out. Charts are up!

Stagflationary Mark said...

abby normal,

Return of the ballon payment.

Pop! Pop! Pop!

Stagflationary Mark said...


There does seem to be a lack of common sense and a surplus of wishful thinking.

I remember debating someone on the Yahoo's COF message board. All his reasons to be bullish were my reasons to be bearish. Record low unemployment? Okay, so where is it likely to head next then? I'd much rather invest when there's record high unemployment. At least then I'd know things might get better.