Thursday, June 18, 2009
Two GOOD Signs
This year rail and trucking freight have been highly correlated, so the rail reports are very encouraging.
Retail still looks dismal and declining. It's going to be a challenge to get off the floor with consumers apparently retracting. One heck of a challenge.
Philly Fed (pdf) show continued declines, but at a much slower pace. The striking month to month increase in the current index was offset by the dour comment that this is the best since Sept 08, when the index turned positive - right before the cliff dive began.
Overall, the best one can hope for is a few positive months of GDP late in the year, but it is hard to see how we can achieve escape velocity without some stronger consumer spending when capacity utilization is so low. In the US, utility outputs dropped 3.4% from May to May. This is pretty comparable to China's and Germany's figures, which makes me utterly discount the Chinese growth meme.
However, India's 6.9% increase in electricity output is encouraging.
The fact that the cliff-diving is over for the nonce doesn't mean that growth automatically resumes. There are very different forces at work in this recession compared to normal recessions. Demographics, high debt, and a very widespread asset bubble have to be included in the calculation. Right now on the manufacturing the best guess for the rest of 2009 is more of the bottom leg of an L than a decisive upward trajectory. We haven't reached the bottom yet either.
Maybe I'm dense, but those two sentences seem contradictory to me. I assume you mean that the bottom for manufacturing will come sometime in 2009, followed by essentially zero growth?
That would be pretty good, compared to a 1930-1932 scenario. But I'm guessing that your scenario doesn't allow for egregiously destructive stupidity in Washington. I'm one of those folks that tends to think that Smoot-Hawley had something to do with the real depth of the Depression, and there's at least two separate initiatives in Congress now that have the same destructive potential.
You've got an unfriendly US president, a difficult financial industry, the massive deficit, and higher household debt margins really than in the US.
Each little pickup in world financial markets will be exaggerated (at least in London), but we have to stagger through another 8 months to make sure that there is a bottom in.
See, I'm questioning that bottom, because I don't see where the renewed investment comes into play.
I have spent most of the week in a veritable trance of calculations. I am trying to figure the current expected straightline range of outcomes, and then we can go from there adjusting for policy changes.
World markets are swinging with US and China news because everyone expects a repeat of previous recent history - that the Chinese remain in a growth pattern due to internal investment, and that the US consumer just goes on spending money regardless, which two events are supposed to impart enough life to the world economy to keep it staggering forward.
Neither is going to happen. The US consumer is not going to continue spending and is indeed cutting spending, and I don't believe the Chinese are managing to sustain growth.
People really haven't recognized that consumer spending isn't coming back? Fer cryin' out loud, every "man on the street" conversation I've had about the economy in the last 6 months has implicitly recognized that, even if they didn't have the math or the jargon to correctly describe it.
That's the most depressing thing you've told me yet. If that's where the experts are at, it would help explain the incoherent policies coming out of Washington. They must just be unwilling to admit what everyone knows.
Yes, Neil, that is what the "expert" commentary has conveyed. An utter refusal to see the dimensions of the problem.
That is why I was so disturbed about Romer's failure-to-read defense of the employment report.
The pressing problem for this situation is that the government needs to boost domestic investment as a stimulus to control some of the adverse effects. Since the stimulus bill was first assembled and pushed through Congress, the US administration has shown no speck of understanding of the scope and gravity of the current situation.
I also spent a miserable two days trying to research stimulus spending without turning up much that is likely to give us the boost we need.
The trajectory this year for rail is highly disturbing so far and appears to completely refute recovery talk. Even if June could take a step up of a few percentage points, it would be a huge relief. These current figures are too low to be consistent with an economy that is getting ready to turn.
If we can't at least get to an economic thermocline soon, this has the potential to turn into an outright depression.
Both retail and small businesses are now really threatened. There should be some pickup left in the system from the cash-heavier companies that have seen competition go out of business, but it is not yet enough to boost general economic activity.
We'll know more about the second half in just about three weeks as retail and freight data for June come in. Because of the undoubted drag of higher fuel prices, June will turn in a diagnostic point for the rest of the year.
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