One does not need to blame energy anymore for the rise in the cost of living. The chart on the upper right have been in a steady up trend for 24 months, led by Average Hourly Earnings of service workers, which are up 3.9% over the last 12 months versus a 12 month gain of 2.6% in February 05. The Consumer Price Index for Services is 59.2% of the total weighting. Rent of Shelter is 31.9%; Medical Care services are 10.7% of the weighting; and the Energy weighting is 8.7% of the CPI. The FED has felt comfortable with M2 growth between 3 and 5.5% for the last 2 years, while the velocity of money continues to accelerate.

The charts on the left present a significant policy challenge for the FED and the Administration going into the 2H 2006 and 2007. Employment of persons with no high school diploma or only a high school diploma are showing signs of peaking after only 1.2-1.5% growth in the last 4 years. Employment of persons who did not graduate from High School peaked in July 05 at 12.136 million and was 11.823 million in February 06. Employment of persons with only a high school diploma peaked in October 05 at 36.627 million and stood at 36.24 million in February. The pool of college graduates working, 40.808 million strong, have an unemployment rate of 2.2%. Looked at another way, the growth of employment by age group reveals that the 20-24 year old cohort hit 13.756 million employed in July 04, peaked at 13.945 million in October 05, and was at 13.801 million in February.

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