Smart Investing Daily – Are We Living in the Federal Reserve’s Twilight Zone?

Energy Prices Are Up…

Crude oil futures were trading in the upper $70s in November of 2009 and in early November 2010 spiked up to over $87. That’s a roughly 13% jump. In the world of natural gas, we’re looking at a very similar story in our cost as consumers. Even though natural gas futures were flat(ish) compared to last year, you as the end user have been paying higher prices from April up until September.

And Are Is Electricity Prices…

According to the EIA (U.S. Energy Information Association), our average cost in cents per kilowatt-hour for 2009 was $11.55. Up until August of this year the average was $11.53, but don’t forget that September, October and November are still relatively high usage months for many homes, so expect that number to rise as well.

Getting to and from your job or job interviews and running errands is definitely costing you more: The average price of a gallon of gasoline is up 26.3 cents from a year ago, which represents an almost 9% increase in cost.

AAA says that the average driver travels 15,000 miles per year. Assuming two drivers per household getting an average of 20 mpg, that’s 1,500 gallons of fuel. If fuel jumps another quarter, we are talking a $750 per year increase for the average couple with no kids.

And — You Guessed It — So Are Food Prices…

I always found it humorous when analysts strip out food and energy when looking at consumer prices! As a human being, I need to keep myself at a certain temperature and eat and drink just to stay alive! While energy costs are moving higher, feeding your family is really costing more than it did last year.

Raw commodities alone are through the roof!

• Wheat was around $4.90 a bushel a year ago, now it’s about $6.50, +33%.
• Corn was trading for $4 a bushel, today $5.50, +27%.
• Cotton, sugar, coffee, metals are all soaring to record highs.

Raw commodity price increases translate to final product costs. According to a survey published on Nov. 14 by MKM partners, the price of an 86-item average grocery list at Walmart (the nation’s largest discount retailer) was up 0.6% in only two months, which would put prices up almost 4% a year from now…

The BLS (Bureau of Labor Statistics) in its latest report noted a 1.4% increase in food and beverage consumer prices, a 4.8% increase in transportation costs and a 3.4% rise in medical costs. Apparel was moderately lower, down 1.2%. Check out the full report from the Bureau of Labor Statistics.

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The Other Necessities: Employment and Housing

Currently, 9.6% of the workforce (not population) is unemployed; this is down just slightly from a year ago. Since December 2009, employment in the private sector has risen by only 1.1 million, or less than 0.4%. QE1 did little to help incentivize companies to bolster employment. Drops in unemployment have been much greater in the past with no QE.

So What About the Things That Should Be Rising?

For most Americans, the biggest asset and source of comfort, pride and shelter is a home. While the stock market is up and mortgage rates are low, (30-year rates are down about 62 basis points in the past year according to Freddie Mac), banks are still struggling to let go of their cash. They are hoarding their cash in record amounts and making it harder than ever to get a loan. Home prices are actually down an average of 0.2%

Americans aren’t seeing huge gains in salary!

I don’t know of many folks getting big raises in the past year, but according to the BLS, average hourly earnings rose 0.7% (seasonally adjusted, which can be tricky) from October 2009 to October 2010. They did note that the average worker is putting in 1.8% more hours per week (that could be because the average company is trying to squeeze every last bit of productivity from its existing workers to stave off hiring new ones that cost money).