Monday, October 12, 2009

To the Pouting Pundits of Pessimism: V-Shaped Economic Recovery Is Well Underway

By nearly every measure, the economy is tracing out a V-shaped recovery. The pouting pundits of pessimism say that people aren't spending, but retail sales (excluding autos) are up at a 3.9% annual rate so far this year versus double-digit declines late last year. Manufacturing has turned the corner (the ISM Manufacturing Index has been above 50 for two straight months), imports and exports are bouncing back, commodity prices are up significantly, and real GDP is set for solid gains of 3%-4%.

Housing has turned the corner as well. After bottoming in January, new home sales are up 58% at an annual rate. Housing starts have also bottomed, housing inventories have plummeted, and home prices are on the rise. The S&P/Case Shiller 20-city index shows that home prices are up for two consecutive months and have risen in 15 out of 20 cities during the past three months.

Jobs are always a lagging indicator, but there are three other contributing factors to the current lackluster jobs numbers. First, CEOs are skeptical of the recovery and tentative about hiring. And productivity is allowing more production with fewer workers. But productivity can only hold off new hiring for so long. With inventories at rock-bottom levels, consumer spending on the rebound and profit-margins wide, job growth should expand sharply in the quarters ahead. Expect positive job growth in late 2009 or early 2010.


~Brian Wesbury writing in
today's Wall Street Journal


20 Comments:

At 10/12/2009 11:16 AM, Blogger Michael said...

Mark, you forgot the to include the best part of the article and the goal of the current administration.

Whether or not this recovery continues depends on the course of government policy. If the U.S. passes a costly bill to nationalize the health-care system, a new tax system to reduce carbon emissions, and higher marginal income tax rates, a European sclerosis will settle in with permanently higher unemployment rates.

 
At 10/12/2009 11:55 AM, Blogger misterjosh said...

Why exclude autos? Sounds like cherry picking to me.

 
At 10/12/2009 12:21 PM, Anonymous Dozer said...

In 3 to 6 months you will be ASHAMED you ever predicted and early, quick, and vigorous recovery.

Your excuses, equivocation, andrationalizations will flow like the tears of the unemployed.

 
At 10/12/2009 1:25 PM, Anonymous Medici said...

"By every measure...."

I scoff at the knavish ignorance of this absolutely ridiculous denial of apparent reality.

Keep trying to milk that bull and see what happens.

 
At 10/12/2009 1:43 PM, Anonymous Anonymous said...

"If the U.S. passes a costly bill to nationalize the health-care system, a new tax system to reduce carbon emissions, and higher marginal income tax rates, a European sclerosis will settle in with permanently higher unemployment rates."

You mean like all those countries 1-12 that beat the US in the latest HDI rankings?

HDI Rankings

 
At 10/12/2009 1:58 PM, Anonymous Oval said...

HDI. Hah!

Another bogus, contrived, value-laden index designed specifically to elevate qualities of social welfare states above the US.

The HDI doesn't measure the deadweight losses of taxation, the burdens of regulation, the costs of waiting times, the free riding off American technological innovation, or the dead bodies from the goods and services never delivered from a distorted incentive structure.

I see lots of Norwegians coming to the US for graduate and medical school. I don't see any Americans going the other way. But they sure as hell know how to award prizes, don't they? And they ski good.

 
At 10/12/2009 2:03 PM, Anonymous Table Stakes said...

A development index from the UN Development Program.

LMFAO!

 
At 10/12/2009 3:55 PM, Anonymous Anonymous said...

"I see lots of Norwegians coming to the US for graduate and medical school."

Given the ranking for infant mortality for Norway (5th) versus the US (33rd), maybe it's a good idea to convince more of those Norwegians to stay on after they graduate.

 
At 10/12/2009 6:12 PM, Blogger Jack Lacton said...

I have been listening to and reading Brian Wesbury's stuff for well over a year and have to admire his confidence in America and enthusiasm that the recession is over.

However, he doesn't have a good track record at making predictions.

Everyone who is predicting a v-shaped recovery, being the same set of people who failed to predict the recession, will be shown to be wrong, wrong, wrong.

The US is in diabolical trouble and, unfortunately, there are no serious people on the Hill able to deal with it.

 
At 10/12/2009 6:21 PM, Anonymous Anonymous said...

Note that HDI is a combination of Life expectancy at birth, the Literacy rate and gdp/person. So the US looses on the life expectancy and Literacy lines largly because of its more diverse population. Since it includes GDP/Capita it does measure some of the "dead weight losses mentioned", if they weigh down the GDP/capita number. Note that the range between the us score is .956 and Norway is .971 or about 1.5% so not much difference anyway.

 
At 10/12/2009 11:24 PM, Anonymous Oval said...

GDP does not in any way, shape, or form measure deadweight losses or opportunity costs. They are unregistered costs under any national accounting system because there is no counterfactual by which to measure them.

As for infant mortality and life expectancy, those are not good measures of either standard of living or the effectiveness of health care systems.

Americans and Norwegians, for example, live very different lifestyles. There are differences in diet, exercise, smoking, drug, and alcohol consumption, vehicle miles traveled, genetics, and other factors which affect these measures and have nothing to do with standard of living or quality of health care. Then there are interactions between these factors.

Norway is a homogeneous society. When you look only at non-hispanic whites, our life expectancy figures are much closer to those of the top nations - within a year of Norway. So the HDI ignores the impact of diverse demographics and subculture behavior.

Norway has a population of only 4.8 million. In fact, there are as many Norwegian-Americans as there are Norwegians. Smaller populations, concentrated geographically, increase the efficiency of public goods provision.

Norwegians die from heart disease at a higher rate than the US. They drink less and smoke less than Americans. They drive far less than we do, therefore have far fewer traffic fatalities. Norway has far fewer firearms deaths both due to suicide and homicide, both of which are cultural factors and homicide is heavily concentrated among black Americans.

So this index dilutes information through aggregation and the components of the index are value-laden. I could easily concoct an index of "human development" which would put the USA at the top. This would not be science, and neither is the HDI.

Any "index" should be treated with healthy skepticism. By generalizing, the underlying dynamics are obscured.

 
At 10/13/2009 12:38 AM, Blogger Michael said...

And Norwegians hand out awards before a competitive event takes place.

 
At 10/13/2009 3:44 AM, Anonymous Anonymous said...

I think an important point to note is that Wesbury is not an "independent" economist. He is an economist for First Trust. First Trust is a unit investment trust, mutual fund and closed end fund company. They make money when people invest. Economists hired by fund companies are part of their marketing department, have no impact on investments are provide marketing information to the financial advisors who sell their products.
Though I don't disagree with his logic, his motivation is transparent.

 
At 10/13/2009 7:35 AM, Anonymous Anonymous said...

Message to Oval... you need to take your head out of the sand.

If American industry has such low taxation, minimal regulation and technological innovation why is your economy in such a mess?

I'd say the HDI figures are a lot more meaningful than US government employment or inflation figures, which I would take with a pinch of salt.

Are you aware the unemployment rate is higher in the US than the EU?

Norwegians come to the US to graduate because it is cheap. Americans can't afford to go to Norway for a vacation, let alone medical school!

 
At 10/13/2009 7:57 AM, Anonymous Fred said...

"Given the ranking for infant mortality for Norway (5th) versus the US (33rd)..."

We have a different definition of live births here, if memory serves: we count premature babies as live births, so they count against our infant mortality rank; other countries don't count them as live births in the first place, if they are below a certain weight. This isn't an apples-to-apples comparison

 
At 10/13/2009 2:20 PM, Blogger juandos said...

HDI rankings from the same outfit that gave the world IPCC... ROFLMAO!

BTW did anyone else note that only real claim to fame for countries high up on the list was 'socialism'?

From Dr. B Healy M.D. writing in US News & World Report: Behind the Baby Count

First, it's shaky ground to compare U.S. infant mortality with reports from other countries. The United States counts all births as live if they show any sign of life, regardless of prematurity or size. This includes what many other countries report as stillbirths. In Austria and Germany, fetal weight must be at least 500 grams (1 pound) to count as a live birth; in other parts of Europe, such as Switzerland, the fetus must be at least 30 centimeters (12 inches) long. In Belgium and France, births at less than 26 weeks of pregnancy are registered as lifeless. And some countries don't reliably register babies who die within the first 24 hours of birth....

 
At 10/13/2009 8:29 PM, Blogger VangelV said...

I believe that the recovery talk is without foundation. While the markets can rally for a while longer there is no way to get past the major difficulties faced by the real economy. The Fed's reckless monetary expansion has created too many malinvestments that need to be liquidated for a real recovery to take place. There are simply too many homeowners sitting in houses that they cannot make payments on and far too many derivative contracts on the books of the major banks that are marked significantly higher than their true market values. The USD could (and should) rally because everyone is negative on it but no matter what happens in the short term, the longer term direction is down.

Instead of betting on a recovery I would look for opportunities during the inevitable pull-backs to add gold and silver to one's portfolio.

 
At 10/13/2009 9:33 PM, Anonymous Oval said...

No American wants to go to the third rate grad schools in Norway. It's not about affordability. It's about quality.

I went to grad school with Norwegians. Three of the four are working in the US and the sole female was dragged back to Norway by her husband. She would have preferred to work here too.

The unemployment rate in the US was HALF the european rate until recently. This crisis was caused by socialist-like housing policy which subsidized large ticket risks, not free market principles.

Now that we know you are an America hating POS, we can summarily dismiss the remainder of your arguments. BTW, try putting a name in the Name/URL block, moron!

 
At 10/21/2009 8:24 PM, Blogger VangelV said...

We have a different definition of live births here, if memory serves: we count premature babies as live births, so they count against our infant mortality rank; other countries don't count them as live births in the first place, if they are below a certain weight. This isn't an apples-to-apples comparison.

That is right. If the US treated live births as other countries it would move way up on the list. But there is another problem that does not exist in Norway or most European nations. The US has a bigger drug problem and many more babies born to mothers who care more about their next hit than the baby they are carrying. Sadly, that also has an impact on the outcome.

 
At 10/21/2009 8:51 PM, Blogger VangelV said...

If American industry has such low taxation, minimal regulation and technological innovation why is your economy in such a mess?

First, US corporate taxes are higher than being claimed.

Second, the American economy has moved towards activities based on finance, real estate and insurance. All those took a huge hit thanks to the Fed's liquidity driven speculation. (That said, the EU banks took just as large a hit.)

Third, the US spends a great deal more on its military than it should. It spends tax revenues to defend Germany, Eastern Europe, Japan, Korea and many other nations around the globe. The waste of resources does a great deal of harm to the economy.

Forth, the US wastes a great deal more on things like education and healthcare than most other nations. Unlike the EU, where most nations have systems that attach money to the child and there is choice, the US has a system where the money goes to the school boards that provide little or no choice. That means that Americans spend a great deal more for what is terrible education delivered by monopoly institutions that care little about the students in many cases. The healthcare waste is even worse. The US has a legal system that causes doctors to waste money by practising very expensive defensive medicine. The interstate barriers prevent consolidation so a great deal of money is wasted on clerical activities in which bureaucrats are busy filling out hundreds of different versions of what are essentially the same forms. Add rules that force hospitals to provide very expensive care for people who have no intention of paying for it and a system in which neither provider or user has to care for the actual costs involved and there is a clear problem with costs.

But as bad as the US system is, it is difficult to argue that the EU is in much better shape. Like the US, the EU has high taxes, counter-productive and harmful regulations, and a sever problem with unfunded pension and healthcare liabilities. Both sides of the Atlantic have serious structural issues that need to be dealt with effectively and there is a clear race towards the abyss. Unless something is done, both sides will have a major problem recovering influence in a changing world. If the USD loses its status as a primary reserve currency Americans may be forced to make some very hard choices but that could be a good thing in the long term. Obviously, the unfunded liabilities will have to be dealt with by inflation and outright default but the US system may be flexible enough to avoid a total collapse. The EU may have a harder time because of the extremely high cost of living. While a simple solution would be to open up the markets to competition that would lower consumer costs it is difficult to see the EU reducing its consumption, payroll and energy taxes by enough to light a spark in the economy. Some time over the next few years the pension axe will fall on countries like Italy, Greece, Portugal and Spain. That should tell us something about where the future is heading.

 

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