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Friday, September 28, 2012

The Problem Is Incomes

Update: There seems to be some shock about the Chicago PMI number, but why? If you look at the details this is just a continuation of trend. It's catching up with the headline number because of the rolling averaging and seasonal adjustments, but surely nobody thought this was going higher?  The order backlog trend has been quite negative since May (only above the 50 line ONCE). It was going to catch up with us. It did. If this is unexpected, so is hunger and thirst. What is notable in this report is that although employment is still expanding, there was a sharp downshift that is going to show up in employment reports over the next couple of months.
End update.

It's not just our problem, either. 

BEA's personal income and outlays report for August is out.  July's nominal personal income increase was revised down to 0.1, and August is reported as 0.1. However, in inflation adjusted dollars, July's increase is still 0.1 but August converts to a -0.3. Nominal PCE is 0.4 for July and 0.5 for August, but in inflation-adjusted dollars it is 0.4 for July and 0.1 for August, and that's with back-to-school spending!

Consumer spending isn't going to carry us through (article), because all too many consumers don't have money to spend! Jacking up the amount they must spend for basics is hardly going to help the situation. The Fed's actions are sustaining commodity prices and equities to an extent, but I hardly see how it will increase jobs. You need an increase in real spending to increase jobs.

Eurozone inflation took an "unexpected" jump in September to 2.7%, dashing hopes that ECB would lower rates.

China is limiting its stimulus actions due to fears over house prices. Read the article. They are desperately trying to avoid a crash landing. Who can really criticize them? Who wants to be Spain or Ireland? Still, this means they are doomed to walk it down. Chinese companies are having a funding problem because they have a revenue/profit problem:

Anyway, the weakness in the US economy shows in more restrained intermodal gains in rail and various shipping indicators. This is of course awful news for China, and also for Japan, which is clearly in a recession. Manufacturing PMI is just hanging in contraction.

But aren't we all just slowly walking it down? It's a quiet, inexorable sag. The European recession just grew with a determined, stolid stoicism that now defies any possible attempt to redress.  


The Fed's actions are sustaining commodity prices and equities to an extent, but I hardly see how it will increase jobs.

I am skeptical that anyone at the Fed believes that QE3 will increase employment. I think they have their eyes on the interest paid on new Treasury issuance as a percentage of GDP. In one sense, they are correct. A failed auction would certainly have a negative effect on employment.

Many of them actually do seem to believe that this will work.

In the broader world, there is a new seriousness about the effect of monetary policy in countering bubbles.

But in the US, our economic models are in the dark ages.
No, that is not true, it looks like there is more crime than anywhere else because, due to the freedom of press, in the US, crimes are not hidden by the government like it happens in many other countries.
Bigg Boss 6

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