I have to agree with Michael’s sentiments above, today. When Wal-Mart says that it’s experiencing difficulty, you know that a sea of change is coming. The world’s largest retailer is having a tough time selling its wares in this market, particularly as most of its customers are very price conscious. Wal-Mart’s stock price has been dropping steadily since the beginning of 2004, signaling, in my view, that consumer sentiment is weakening.
Not surprisingly, inflation is starting to creep into this economy, and it’s mostly due to higher energy prices. If it weren’t for all the employee pricing that reduced new vehicle purchase costs, inflation would be a lot higher than is currently being reported. It took some time, but the high price of oil is now starting to hurt this economy.
Although the summer driving season is almost over, demand for petroleum and natural gas will stay very strong for the remainder of this year. Futures prices for heating oil, gasoline, and natural gas are all trading at lofty levels. It’s not going to be too long before high raw material costs, which include energy as well as precious metals, will start to affect levels of industrial production. Contrary to Michael’s opinion, I believe prices for both consumer and industrial products are about to rise substantially over the next two years.
Of course, this is why the Federal Reserve has been raising interest rates. The central bank is trying to curb inflation, but I believe its efforts will be to no avail. Interest rates are just too low right now to make much of a difference over the near term.
If you want a good indicator to gauge this economy, all you have to do is follow the stock prices of Wal-Mart, General Electric, and IBM. I call them the “Really Big Three” — large, global companies that are leaders in their field. These companies are so big that they represent an excellent gauge as to the health of the economy. Interestingly, the stock prices of all three companies are experiencing pronounced downtrends at this time.