Thursday, September 02, 2010
The Current Base
Also, ADP employment yesterday was really bad. But still, ISM, factory orders, NACM and Chicago PMI all show an economy in which we have some underlying growth impetus left. NACM showed a minor improvement after three months of very solid declines. The ISM manufacturing report yesterday was solid, although there were some weaker factors there. Housing should have about bottomed, because rates are so low that it will gradually draw more buyers with home prices dropping and most importantly, home prices ARE dropping. There is no way to clear the market without substantial price declines. As long as we let it alone and the rest of the economy keeps struggling along, the housing problem will fix itself and be substantially improving by 2012. It takes five years.
Another and much more important indicator (so far, I am on tenterhooks as to August and September) are wage tax receipts. July showed the lowest YoY decline yet - the drop was only 1.1%. Judging by Daily Receipts, August looks excellent:
2009:So right now, the structural "floor" of recovery is still intact, as long as one acknowledges the obvious reality that this was unlike any other post WWII recession, i.e., it's some sort of a depression/recession hybrid. Unfortunately, even Dana Milbank just realized that DC did not take that into account. His article about Romer's talk is quite interesting.
July WIET: 131,417 (end date July 31st)
July CIT: 8.054
Aug WIET: 126,389
Aug CIT: 3,743
July WIET: 131,219 (end date 30th)
July CIT: 9,767
Aug WIET: 135,483 (has revenue from July 31st)
Aug CIT: 4,645
Unfortunately, the floor probably will not remain intact through the second half of next year if we raise taxes sharply. At any given time, the economy consists of a set of forces, some of which are highly ephemeral and some of which are deeply embedded. One of the structural forces here are real incomes among the majority of the population. It will take considerable time to get those incomes to grow enough to overcome the drag, and the worst of it is that state and local taxes are still rising as a percentage of incomes due to state and local liabilities. So raising federal taxes more than marginally will have a terrible impact.
At this stage of recoveries from busts (which is the best definition of this - not a recession, not a depression, but a bust) the economy becomes acutely sensitive to changes in incomes.
PS: For a bit of irate humor, see this blog post by Ann Althouse on Romer's speech. I am sure Romer is permanently off the White House Christmas card list over this. "Who'd 'a thunk" is rather a political liability at this point.
by fewer and fewer workers. No base to turn the
Economy around.and not good for demand or money
I disagree with Sporkfed, by the way. The problem is that we talk about "manufacturing", when we should divide that up into "mass industrialized manufacturing" and "niche manufacturing". Sporkfed is absolutely correct about "mass manufacturing". Our national policies have been chewing away for at least 50 years at that industrial base, which produces our low-margin necessities and is what enables our quality of life. We need to start recapturing some of that, somehow--it's as useful a sector as being a food exporter. But there are countries that do quite well while importing food.
However, the high-value stuff going forward is all in niche manufacturing. Satisfying long-tail needs efficiently. More and more people are employed in that sector, which is one of the reasons all the job growth is in small companies. Productivity gains enable the filling of more niches, and employment rises in those niches. This will be the dominant dynamic in manufacturing for the next 50 years, and we need governmental policies that enable it, especially if we can export the stuff.
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