Economy Is Still Strong but Moderating

Chart of the Week for Jan 19-25, 2001

In spite of recent signs of slowdown, the economy is in good shape. Looking at the chart above, the savings rate has been trending lower since the early ’90s to reach a (0.8%) record low in November 2000. A low savings rate is an indication of confidence as consumers use a substantial portion of their disposable income, which ensures continued demand and production.

Inflation, as measured by the Consumer Price Index (CPI), grew at an annual rate of 3.4% in December. The core index, which excludes the food and energy sectors, posted a 2.8% reading. These figures indicate that the economy is growing without inflationary pressures despite the high spending.

As long as consumers remain confident and continue to spend, the economy is likely to continue to grow (albeit at a more sustainable pace).

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