Consumption stabilizing at 2006Q4 levels

Data monthly to July.  With Total Capacity Utilization at 69 percent and still very high levels of uncertainty in the financial markets, it is difficult to see investment spending adding much of a kicker to aggregate demand.  The political will for much additional government stimulus spending appears to be lacking.  Net exports are constrained by economic weakness abroad.  Consumption spending will continue to be depressed by increased saving and additions to the ranks of the unemployed, especially those not covered by unemployment insurance, and shrinking overall employment.  Hence, an L-shaped recovery appears likely in the intermediate term.  A further debt-deflationary collapse may follow in about five years.

As measured by the BLS, inflation appears to have returned to an Oh-Oh Decade trend rate of ~2.5 percent.  Declining value of the dollar will put pressure on inflation through import prices, constraining physical demands and further discouraging investment.