Tuesday, August 25, 2015
Is a recession inevitable.
1: The latest report from the New York Federal Reserve Bank shows that manufacturing activity in New York has dropped to the lowest level since 2009.
General Business Conditions
https://pbs.twimg.com/media/CMnFuiMUwAQK-z-.png
2. The Institute for Supply Management’s Purchasing Managers Index (PMI) for manufacturers dropped from 53.5 in June to 52.7 in July. While that isn’t horrible, the export component of the index dropped from 49.5 to 48, clear evidence that US exports are in deep trouble.
http://static.cdn-seekingalpha.com/uploads/2015/8/17/saupload_081515-Empire-Manufacturing-Main-Table_thumb1.png
3. Export woes for American companies. According to Trade Stats Express, US exports are down 4.16% in the first six months of 2015.
http://cdn.tradingeconomics.com/charts/united-states-industrial-production.png?s=ip+yoy&v=201508151858e
4. The most telling is the capacity utilization rate. Capacity utilization is the unemployment rate for American factories.
http://www.alhambrapartners.com/wp-content/uploads/2015/06/ABOOK-June-2015-IP-Cap-Util.jpg
5. The US isn’t the only place whose factories are dangerously slowing down. Despite the Chinese government’s best efforts to reinvigorate its slowing economy, the latest Purchasing Managers Index (PMI) readings dropped to 47.1 in August, a 77-month low.
American factories are falling into deep trouble—and when combined with the horrible fundamentals of the transportation industry it is clear that our economy is showing a lot of recessionary symptoms.
Is a recession inevitable.
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Sigh, this is going to get flamed. Here goes anyway. For everyone but those with highly employable skills, we have been in recession for well over a decade now. Are we worried now that there are no more gains left to be had by simply redistributing income upward?
ReplyDeleteIn seriousness Lou, I watched the numbers get shitty for a long time when I worked int he markets. People are so hyperfocused on these numbers that released, restated, fudged, and so on. I can be dismissed I guess for my socialist way and alleged love and passion to have government control everything (which is all bullshit by the way). Nonetheless, it is unmistakably clear that a teensy slice of participants in our economy have done stunningly well while a very large segment has done very very poorly. Blame whatever you want for causing that, but I don't think our economy is really ever going to do better until we see more money circulate in the economy.
but I don't think our economy is really ever going to do better until we see more money circulate in the economy.
ReplyDeleteLooking at the new Cree LED Light made in China, how do you circulate more money into the economy when we buy Made in China and ship the money overseas?
A small amount goes to the retailer, a small amount to the investor in profits. Materials, labor head out when it's purchased.
I've watched the velocity on money for quite some time. The last 10 years it's benn dropping every year.
https://research.stlouisfed.org/fred2/series/M2V/
We no longer recycle money through the economy.
I personally have been a person with highly employable skills and have done well regardless of the economy. I watch others struggle and wonder what we as a country can do to repair the money in circulation issue. Give everyone 10K and watch the results. Most will go shopping for junk, made somewhere else. I looked at the Cash for Clunkers program. The winners
1. Toyota.
2. Honda.
A portion was recycled via workers, dealerships but eventually left when a person bought made in _____.
The trend line seems to be on average 1.7. and began it's downward trend at the end of 2010.
Today its in the 1.4 range.
Maybe this is the new economy where 1.4 is the new norm.
Thankfully, I have had good skills too, which is why I question the talking heads discussing recession now.
DeleteBy TS's rules, everything I say should probably be just be ignored because I agree with some of what you said, but not all of it. I'll type it anyway. We agree that buying cheap shit from China has lead to a perpetuating cycle: buy some shit, the money goes to china and gets invested in more factories, which takes more jobs from America, and so on and so on. It's not the whole story though.
I watched capacity utilization a lot in the 90's. I also watched companies lay off workers, and make he remaining workers do more work. I also watched a lot of growth in productivity per employee, and though employees began to produce more per hour, it's not like they got paid any better. It's also not like technology let them work sooooo much easier while they became more productive. Simultaneously, workers got squeezed by the fact that Chinese workers could build shit cheaper, and then workers also got squeezed by the reality that so many people were unemployed. It's not like business was forced by government to squash wages. If there was no accompanying growth in profit, I would say there was some sustainable equilibrium. I don't think that happened though.
Giving everybody money just spend, AKA the "Helicopter Ben Bernanke" theory isn't the way to go. That said, making money available to go to school for a degree in demand is something I think makes sense. Instead, we lend money at ridiculous interest rates way above market value. At a time when the Fed is literally giving money away to those wealthy enough to take advantage of the subsidy, it seems disgusting to be charging people north of 4.5% to obtain a skill that will make them and the rest of our economy better.
If we can believe wiki, and I don't think you do, the ranking of how the cash for clunkers program worked out like this, " At the end of the program Toyota accounted for 19.4% of sales, followed by General Motors with 17.6%, Ford with 14.4%, Honda with 13.0%, and Nissan with 8.7". This is to say I really liked this program, because I think it created a lot of waste. That said, in addition to cars sold, I think that a lot of people had a chance to drop into something with better fuel economy. Again, not saying I think that was a great reason to do it, but if we are going to really examine a program, I think we should look at a bigger picture. Of course, in that bigger picture, we had a government sponsored program, which means we will have more and more and more and more until we reach a gazillion dollars and everyone is enslaved. On the other hand, we might avoid that.
I also watched companies lay off workers, and make he remaining workers do more work. I also watched a lot of growth in productivity per employee, and though employees began to produce more per hour.
DeleteIt's the way business works. Innovate or die. Much of the gains were related to tech advances. We now have ATM's everywhere and fewer tellers. We have self check out everywhere. Less cashiers. We have computerized programs for everything to assist us. And yes, business has taken advantage of the gains in productivity.
Cash for clunkers, not mentioned is the foreign parts or the manufactured vehicles made in Mexico, Canada, etc. My Ford Escape 90% American made parts, assembled in the US is slowly being converted as all replacements parts are made in China.
The neat trick will be how do we turn this mess around? End free trade agreements so imports can be tariffed? The excess workers from south of the border is an unsolvable problem until American workers stand up and say enough. The politicians, both parties will do nothing to damage their employment prospects.
All in all it's a chocolatety mess.
Trump promised yesterday to start tarriffing Fords coming from Mexico. Is that the answer? Maybe it is. A problem though is that both parties signed off on those deals and we can't simply just tear them up. Not saying I have an answer, but I think we do need to acknowledge what we really are up against.
DeleteShould be a neat trick with NAFTA in place prohibiting tariffs.
DeleteTalk as we have found out with Obama, Bush, Clinton is just that, blather unless Congress acts and the president signs off.