Wednesday, November 03, 2010
Right now, the economy is stronger than most non-Wall Street economists think, IMO. ADP came out well today with further private industry gains. NACM was really good. Really, really good. Banking data has continued to firm. (There was a dip in C&I loans, but that seems to have been due to paybacks and it is probably picking up again.) Commercial paper dipped but has been picking up, which is a very good sign (mostly related to autos, I believe). We've hit the trough on housing and are moving out of it, and we probably are going to start adding private sector jobs at a more rapid pace. The ISM surveys and Chicago PMI support a growth thesis. Judging from rail, although intermodal has probably peaked the production-related freight is still growing. Federal tax deposits for October were highly encouraging. There was a drop off in the WIET growth rate this fall, as I expected from the disproportionate impact of education layoffs. But still both WIET and CIT tax receipts were substantially up from last year.
This is growth across the board, and all of these indicators can't be wrong.
Where we're weak is in consumer demand, but that isn't a stopping blow yet due to the build in Other Deposits. You can't depend on consumer credit to drag us out, but that money in deposits is real and can be spent.
This is why I believe the Fed is going to make a terrible mistake and throw away low-level but real growth in favor of a short-term spike in stats that will impair real growth. And it's a very bad mistake indeed when you look at Europe, which is about to allow the PIIGS to devalue their debt and hand the loss to investors rather than impair their growth potential. Germany is winning this argument hands-down. That will tend to promote shift investment to Europe.
So the American consumer is almost certainly going to get a ten-day dead trout in the face from the Fed, and they are not going to be in a spending mood after that.
The Fed of course, in a feeble attempt to prop up real estate and/or some of its biggest investors, will do so little to make a difference in that area; yet it will be enough to be a detriment to the other sectors.
I'll gladly take a few years of real estate decline in order to keep my job. For every person more than 10 years from retirement age, their biggest asset is not their real estate holdings but their ability to work. The Fed and its cronies seem intent on screwing over everyone under 55.
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