Friday, March 30, 2012
January contained a bunch of offsetting stuff, such as increases in SS checks of 3.6%, increases in unemployment taxes (lowering incomes for businesses), increases in military pay checks, blah, blah, blah. February and March usually include additional spending from income tax refunds. March retail should be increased this year due to an early Easter.
Chicago PMI is very good. Inventories had been contracting last month, so one would expect so, but there are plenty of orders. Prices paid went to 70.1 SA, 72.2 NSA, which should suggest that Lacker is not all wet. In general the manufacturing surveys were good this month, with relatively high input prices. We are neither near deflation or epic inflation, at the moment.
NACM. A minimal increase for manufacturing, which has had some strong months. A larger increase for services, which tends to lag manufacturing a bit. Dollar collections fell pretty hard in March for services, but looking at the general improvement in negative factors for services suggests that it due to higher pace of activity. The commentary on the report is quite optimistic. The YoY improvement for negative factors on services is now in "substantial improvement" territory. That can come from folding of weaker players.
Manufacturing indices show degradation YoY still, but if you think about it, we should get a relative bounce by April because of the absence of last year's disruptions. Still, in general when reading all these reports they convey the feel that things are still moving "in range", and that conditions within the business network are not prone to sudden collapses. You have the feeling that the floor is healthier, and that there's more resistance to disruption.
That's really important, because consumer behavior is somewhat cash-flowy, and with personal disposable incomes not going anywhere very positive, we need continued business growth to cover that slack. Walmart is advertisiing cheap Easter candy, and that's not the most positive consumer sign I have ever encountered. Grocery stores look extremely marginal.
If we're not going to get as much push as I had hoped from construction, then we need basic industry to carry the ball, and at least this month's reports provide a case that it can. Auto advertising continues to degenerate somewhat, and consumer lending in H.8 is flat at best (most the overall increases in consumer lending are centered in student loans).
There is an interesting paper studying the effect among community banks of the GSE takeover. Community banks tend to do more baseline lending, and the effect of shorting capital among these banks was probably locally larger than appears from the study. The effect was cushioned by TARP injections.
Note: Rail is not pretty. I hope Lacker is right about 2-3% growth, but I cannot integrate that prediction with what I see in grocery stores, fuel consumption and rail freight.
A long time ago (early 2000s), I figured that the structural growth rate for the economy for the period was more like 1.8%. That is, growth over that margin would have to be purchased either with changes creating greater economic efficiencies or by borrowing. I didn't see anything in the private sector potential efficiencies that could give us more than an extra 0.2% (and that's included in the 1.8%).
Therefore, I do not think it is coincidental that we managed to haul through last year at 1.6%, but what alarms me is that we did it by borrowing so darned much.
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