Little bit of good news is pushing up the market today. Commerce Department said that the personal income has gone up six straight months and spending has increased four straight times. Consumers’ personal spending rose by 0.5 percent in January, slightly better than expected. But incomes edged up only 0.1 percent, significantly lower than the 0.4 percent gain that economists had expected. Consumer spending is closely watched because it accounts for 70 percent of total economic activity.

On the inflation side core price index (CPI) for personal consumption expenditures, which excludes volatile food and energy, rose 1.4% compared to January 2009. CPI is slightly decreased compared to December last year. It was 1.5% in December 2009. This means that prices are in check and inflation is not a big danger yet.

It was unthinkable even few months ago. U.S. is heading in the direction of Japan in terms of interest rates. Whether it’s necessary to reduce the interest rate to zero is debatable. But, the fact is interest rate is almost zero in U.S. today.

How it would affect you? There is good news and bad news depending on your specific situation. If you have mortgage on your house, it’s time to refinance. When the Fed reduces key interest rate, mortgage rate doesn’t really automatically fall down. Still, there is a high chance that mortgage rate would fall down by at least 0.75% in the near future. Refinance your house, it will save you lot of money.

If you owe any credit card debt or any other kind of debt, it’s time to refinance that as well. Talk to your lenders to reduce the interest rate on your debt. If your lender doesn’t agree to reduce the interest rate, find another lender that is willing to offer lower rate for you.

If you had parked your money in variable rate CDs, you will receive less interest. If you have invested in fixed rate CDs for a specific time frame like 6 months, you will be ok until the CD matures. When the CD matures, it will be reissued for the prevailing market rate at that time. If you have CDs maturing in the next few weeks, watch it out. If you don’t do anything, those CDs will be automatically reissued by the banks for the current lower interest rate.

We are entering a period of deflation. In inflationary period, the prices will increase. In case of deflation, prices will decrease. Decreasing price is good for the consumers. But, deflation is also an indication of serious pain in the economy. We can’t really control what the policymakers in Washington do. However, we can control and tailor our investments based on changes in economic environment.

Related Link: Fed cuts interest rates to virtually zero

It’s not just the employees are afraid of job loss. Even CEOs are afraid that their jobs will be lost. As per a survey by the leaders in London International Leadership Summit 2008, almost 1000 business leaders believed that their jobs will be lost.

Global financial meltdown continues to takes its toll. SAP is planning for layoffs. Many companies such as Microsoft put the hiring on hold. New home constructions decreased 4.5% to a seasonally adjusted 791,000 annual rate, after falling 3.0% in September to 828,000, the Commerce Department said today. Year over year, new home constructions were 38.0% below the level of construction in October 2007. Meanwhile, home builders’ confidence in the market has plunged to a new record low amid overwhelming uncertainty about the economy.
U.S. consumer prices took the biggest plunge in 61 years during October, pulled down by a sinking economy that evidence suggests is sending inflation lower. The consumer price index dropped 1.0% on a seasonally adjusted basis compared to the previous month, the Labor Department said today. It was the largest drop since February 1947. The core consumer price index (CPI) fell 0.1% in October. It shows that inflation is not a big threat right now. When the consumer price falls, the inflation goes down. Less inflation is a good thing, but if the inflation goes down too much, it becomes “deflation”, that’s what people started worrying about now.

Related Link: It’s gloomy out there