It’s the Jobs Stupid!!

Posted: July 15, 2009 | Author: | Filed under: U.S. Economy | Tags: , , , , | Comments Off on It’s the Jobs Stupid!!

Here’s a trajectory for POTUS to chew on from the recently released statistics on Industrial Production and Capacity. This is a key indicator of an economy’s well being. It’s down again. There’s something about Obama’s use of the words “right trajectory” on Anderson Cooper the other night that makes me think he should ask Harvard to give him a bit of a refund on that ‘education’. How hard is to understand that when production keeps falling that is not a good trend? He’s had to have the inside scope on these numbers for at least a week. Why give Cooper and the world the impression of something else?

Industrial production decreased 0.4 percent in June after having fallen 1.2 percent in May. For the second quarter as a whole, output fell at an annual rate of 11.6 percent, a more moderate contraction than in the first quarter, when output fell 19.1 percent. Manufacturing output moved down 0.6 percent in June, with declines at both durable and nondurable goods producers. Outside of manufacturing, the output of mines fell 0.5 percent in June, and the output of utilities increased 0.8 percent. The rate of capacity utilization for total industry declined in June to 68.0 percent, a level 12.9 percentage points below its average for 1972-2008. Prior to the current recession, the low over the history of this series, which begins in 1967, was 70.9 percent in December 1982.

The graph (which uses seasonally adjusted data) comes from Brad Delong’s “Bad News About Industrial Production”. I would imagine his education taught him the right frame for what is the ‘right trajectory’ and the ‘wrong trajectory’ when discussing macroeconomics with his UC Berkely Students. I know my economics professor Campbell R. McConnell taught me well at the more humble University of Nebraska where I cut my economist baby teeth. Now, I know we’re supposed to be a service economy and that things like manufacturing, transportation and mining aren’t supposed to be relevant to us any more. I still can’t help asking how many young people with nothing more than a devalued high school diploma would rather face a life building cars than mowing the lawns of Goldman Sachs Bankers? Is any one beginning to have similar questions on the mythical hope and change meme of last year? Is it still just you and me? The Sinoperuvian lesbians of hillbilly America?

Today, even the editorial page of the Gray Lady even asked the right questions.

Unemployment is rising. Foreclosures are surging. Lending is still constrained. So why exactly is the Obama administration waiting to act?

Their answer is not so different from mine of the past two days.

If wait-and-see is anything other than a near-term tactic, it’s bound to be a miscalculation. The need for expanded relief and recovery efforts is compelling. Rather than avoid those fights, the Obama team must win them.

The Index of Industrial Production is a key leading indicator of macroeconomic health. It is released monthly by the Fed. “The indicator measures the amount of output from the manufacturing, mining, electric and gas industries. The reference year for the index is 2002 and a level of 100.” It is sitting now at 95.4 (which of course is less than 100) which means it’s lower than it was when the index was set. It measures REAL production output. This means were producing less stuff and of course, that means there are less people necessary to hired to produce less stuff. That’s not good.

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Charge! (Or Not)

Posted: June 4, 2009 | Author: | Filed under: Equity Markets, Global Financial Crisis, Team Obama, U.S. Economy | Tags: , , , , | Comments Off on Charge! (Or Not)

Fed Chairman Ben Bernanke testified before congress this week and highlighted one of the big future worries facing the economy.  What will be the impact of all this government borrowing on the near and long term economic look and the financial markets?  Brad Setser put the deficit explosion into perspective in his blog at the Council of Foreign Relations on June 2.

The story is clear. Government borrowing has increased dramatically. It topped 15% of GDP in the last two quarters of 2008. In 2007 and early 2008 it was more like 3% of GDP. But private borrowing has fallen equally sharply. Total borrowing by households and firms fell from over 15% of GDP in late 2007 to a negative 1% of GDP in q4 2008.

…

Both charts highlight the risk that worries me the most. In both the early 1980s and the first part of this decade, both the private sector and the government were large borrowers. And in both cases, borrowing rose faster than domestic savings, so the gap was filled by borrowing from the rest of the world. The trade and current account deficit rose. In the early 1980s, the US attracted inflows by offering high yields on its bonds. More recently, it did so by borrowing heavily from Asian central banks, together with the governments of the oil-exporting countries. But now yields are low (even after the recent rise in the yield on the ten year Treasury bond), and need to be low to support a still weak US economy. And China (and others) are visibly uncomfortable with their dollar exposure; banking on their continued willingness to finance a large external deficit seems like a stretch.

The challenge this time around consequently will be to bring down the government’s borrowing as private borrowing resumes.

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