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Friday, April 30, 2010

Pretty Good Chicago PMI


The two things I wanted to see in this one were inventories (about static, which means we are not outrunning yet), and employment, which rose from 53.1 to 57.2.

Manufacturing employment losses in this recession were awe-inspiring. The following graph is from BLS' last Monthly Labor Review:

Back to the levels of the 1940s. Until manufacturing employment recovers somewhat, this is all going to be on shaky ground.

US economic trends are difficult largely because of this drop. We ought to be following extremely manufacturing-friendly policies, but we are not.

Q1 GDP came in at 3.2% annualized, but mostly on PCE growth, which is outrunning real disposable income growth by any standards.

So the theme remains. It's demographics, income, and a whole load of bad debt.

State and local government spending fell 3.8% in the first quarter. Because the surge in federal spending is wearing itself out, total government spending fell 1.8%. From Table 3 we see that Gross Private Domestic Investment rose 56.8 billion, but 50.8 billion of that was inventory build. PCE rose 83.2 billion, or 3.6%, but real disposable personal incomes, according to BEA, were unchanged. Expenditures on durable goods increased 11.3%, and were a big factor in PCE growth.

So, basically we've all got to spend, spend, spend to keep this going. It would be nice if more people had money to spend. There is still probably some backed-up demand for the third of the population that has money, but as one of them, I can tell you there are limits on my willingness to spend on anything except other people in deep trouble. There are so many of them I know that I am unwilling to go buy a new car. I'm thinking that I need to have the money by to make sure that everybody eats and gets medicine!

You can see why I am so worried about prices and the expiration of unemployment benefits. In 2011 taxes will rise, and of state and local taxes (plus service fees) are still rising.

It will be interesting to see European Q1 figures. Europe is a pretty big trading partner for the US. Growth there would help us.

So trying to maintain growth for another four quarters is going to be a careful balancing act, at best. Percentage-wise, Gross Private Domestic Investment rose 14.8% in Q1 compared to rising 46.1% in Q4. Again, most of this quarter's rise was still inventory build. This is going to start fading out, and I don't expect much help from structures other than public-works programs. Since Gross Private Domestic Investment is the fundamental driver, most economists will be a bit worried for the next two quarters.

If small businesses were not so depressed, I'd be thinking we'd get more out of equipment and software. But I do use NFIB for that portion, and so far this year reading the NFIB survey has been an exercise in character building. I'm hoping that profit rebounds in larger companies combined with restrained spending over the last few years will funnel more into the equipment and software portion of GPDI.

Also see CR's comments, which address the same issue.

An observation from the Deep South. I'm a
mailman and have a route that is half business,
half residential. Small business is hanging on
if their fixed costs are low. If not they have or
will be shortly closed. Sales are incresingly
bunched around the first of the month. This
tells me there is no cushion. Maintenance
on homes is being deferred. Not a lot of
optimism this Spring.
My wife saw an increase in business for two weeks around tax day this year, after a bad few weeks in March. I suspect people held off on purchases until they knew the extent of their tax liability/refund.

This might show up in Q2 numbers...
Assuming manufacturing job loss continues at the same rate as the average since 2000, 2029 will be the year in which the last US manufacturing job disappears.
If we spend, spend, spend and we don't make anything, we are sending all that money overseas and further damaging our balance of payments.

We need to get back in the business of producing. That means we need to peel back regulations, and not just the latest bunch. We need to streamline those we don't keep. We need to remove the presumption of guilt from being a business.

We also need to switch our taxation from production to consumption, not the least of which so that imports don't enjoy an untaxed advantage.
There's some smoke. Let's see if it turns into fire.
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