Friday, September 29, 2006

Rising Stocks, Falling Gas Prices & Goldilocks

There’s a great editorial in today’s Chicago Tribune entitled Goldilocks and the Dow.”

They correctly point out that the Dow Jones stock average, which is right on the edge of setting an all-time high, is reflecting solid growth with mild inflation. There’s no bubble.

The money quote is, “We are enjoying a goldilocks economy, not too hot and not too cold.”

Recent economic reports confirm this. The Chicago and Richmond Fed indexes of factory production came in strong, much better than the much smaller Philly Fed report.

Core inflation settled down to only 2.3 percent at an annual rate over the past three months. Excluding energy, the consumer price deflator hasn’t really moved in three years, hovering just above 2 percent.

In the third quarter, real consumer spending is running 3.2 percent at an annual rate ahead of the second quarter average. In addition, non-defense capital goods shipments excluding aircraft are 7.6 percent ahead of the second quarter.

Meanwhile, after-tax real disposable income is 5.4 percent ahead of last year. State budgets across the country are reporting record revenue collections. And over the September 15th tax date, the U.S. Treasury reported its highest revenue collection in the nation’s history.

Politically speaking, this powerful combination of rising stocks, falling gasoline prices and the Goldilocks economy are powerful plusses for election year Republicans. The Dems aren’t even talking about the economy any more.

Today’s results from the online betting parlor TradeSports show an 80 percent probability of a GOP hold in the Senate, and a 52 percent chance for a Republican hold in the House. The TradeSports House GOP contract has actually moved dramatically higher over the last couple weeks, as online bettors see better days ahead for the House Republicans.

The bottom line is that Goldilocks and a reenergized President Bush offensive on national security have turned the November election race around.

Now, the big question is, can the GOP close the sale?