Wednesday, February 15, 2012

Durable Manufacturing Leads the U.S. Economy

  Jan. 2011 to   
Jan. 2012
Total Industrial Production3.4%
1. Manufacturing 4.5%
a.  Durable manufacturing 8.3%
    Wood products 1.0%
    Nonmetallic mineral products 4.1%
    Primary metals 7.4%
    Fabricated metal products 9.4%
    Machinery 8.2%
    Computer and electronic products 4.5%
    Electrical equip., appliances,0.3%
    Motor vehicles and parts 16.9%
    Aerospace Equipment13.3%
    Furniture and related products 5.2%
b. Nondurable manufacturing 1.1%
   Food, beverage, and tobacco products -0.6%
   Textile and product mills 6.1%
   Apparel and leather -0.4%
   Paper -1.8%
   Printing and support -0.1%
   Petroleum and coal products 5.7%
   Chemicals 1.5%
   Plastics and rubber products 2.7%
2. Mining 5.8%
3. Utilities -7.5%
   a. Electric -6.2%
   b. Natural gas -15.2%

The chart above is based on data from Table 1 in today's industrial production report from the Federal Reserve, and shows annual percentage gains through January by industry group (manufacturing, mining and utilities and sub-groups within those three main categories).  The annual growth in manufacturing output at 4.5% was more than a full percentage point higher than the overall growth in industrial production of 3.4% (which includes mining, manufacturing and utilities). And the durable manufacturing group showed an especially strong annual gain of 8.3%, almost twice the growth rate of total manufacturing, and was led by strong output growth in the industry groups: motor vehicles (16.9%), aerospace equipment (13.3%), fabricated metal products (9.4%) and machinery (8.2%).  

The chart also shows utility output (electric and natural gas) decreased sharply, due to the unseasonably warm winter this year. Nondurable manufacturing increased by only 1.1% overall, but there were some strong gains within that category for petroleum and coal production at 5.7% and textiles at 6.1%.  

A Reuters article on today's Fed report commented that "Manufacturing remains the main pillar of the economy," and it's true that today's industrial production report provides further confirmation that American manufacturing is at the forefront of the economic recovery.  

41 Comments:

At 2/15/2012 12:24 PM, Blogger morganovich said...

question:

how is this measured?

the "methods" section on their site talks about counting unit output, but that seems dissonant with the data.

isn't nat gas production up in mcf but down in price?

anyone ever look at this in detail?

 
At 2/15/2012 12:30 PM, Blogger Jon Murphy said...

Morganovich,

This is talking about electricity produced by natural gas, not natural gas production. Electricity produced by natural gas has fallen due to the warm weather (heaters running less, etc).

 
At 2/15/2012 12:42 PM, Blogger morganovich said...

http://www.calculatedriskblog.com/2012/02/industrial-production-unchanged-in.html

so, this second chart (from the federal reserve data) shows industrial production still off somehting like 6% from pre recession.

how can it be the "main pillar of the economy" which, according to gdp, has recovered from recession when it itself has not? this seems dissonant to me.

 
At 2/15/2012 12:44 PM, Blogger morganovich said...

jon-

it does not look that way to me.

electricity and nat gas are separate line items.

what makes you say that the natural gas line is related to electrical generation?

 
At 2/15/2012 1:06 PM, Blogger VangelV said...

how can it be the "main pillar of the economy" which, according to gdp, has recovered from recession when it itself has not? this seems dissonant to me.

People pick out data points to support their views without looking at the entire picture. Why do you think that voters are pissed off and getting angrier by the day while Obama and Congress are trumpeting their successes?

The chart also shows utility output (electric and natural gas) decreased sharply, due to the unseasonably warm winter this year.

The problem is that electricity demand began to fall off well before the unseasonably warm winter. And let us note that the fall in demand has been used by some optimists, including Mark, to claim that energy independence is not only possible but likely.

Nondurable manufacturing increased by only 1.1% overall, but there were some strong gains within that category for petroleum and coal production at 5.7% and textiles at 6.1%.

Coal has been one of my better investments. Demand is still very strong and Asia will take as much of it as we can give them. I imagine that the EU will be looking to replace dwindling coal inventory soon. The latest inconvenient effect of AGW seems to have caused massive shortages.

What really interests me is the natural gas picture. Most of the producers are at the brink of bankruptcy as the need to drill to maintain leases at a time when demand was falling off a cliff and we got a nice and warm winter in the Northeast has caused prices to collapse. The producers are out of cash and can't maintain their drilling without asset sales and new borrowing. Purchasers do not want to have to drill properties at a time of very low prices and a faltering economy. While there is some use of shale properties to hide reserve declines that trick has run its useful life and is in danger of being exposed by the hedge funds who are looking at good short opportunities.

From where I stand all the ducks seem to be lining up. While we could get a temporary liftoff thanks to central bank liquidity injections the way to the bottom is still very severe.

 
At 2/15/2012 1:19 PM, Blogger morganovich said...

v-

this is a bit off topic, but your mention of liquidity injections brought it to mind and would be interested in your opinion.

freddy and fannie are now treasury funded wards of the state. they are also 90% of the mortgage market. they buy up pretty much all conforming loans before the ink is dry.

consider the circularity this creates:

freddy buys a bank mortgage for 400k. the bank takes this 400k, levers it 10:1 and buys us treasuries. that gives the treasury $4 million. they give it to freddy. freddy buys 100 $400k mortages. the bank gets $4 million. they lever it 10:1 and buy $40 million in treasuries.

this starts to look like nuclear fission.

is is possible we are funding federal deficits by buying mortgages?

this is a terrifying idea as it puts money supply in the hands of the treasury, and makes me think of louis Xiii.

am i missing something here?

 
At 2/15/2012 1:41 PM, Blogger Jon Murphy said...

what makes you say that the natural gas line is related to electrical generation?

Looking at the Industrial Production report (the first hyperlink in the post), you'll see NatGas under "Utilities" in the final line item of the report. That's what I'm basing this on.

 
At 2/15/2012 1:45 PM, Blogger Jon Murphy said...

how can it be the "main pillar of the economy" which, according to gdp, has recovered from recession when it itself has not? this seems dissonant to me.

US Industrial Production accounts for about 25% of the economy. Also, remember that something is not in a recession just because it hasn't passed it's pre-recession peak (at least in economic terms. In common parlance, it could mean something different).

 
At 2/15/2012 1:49 PM, Blogger Jon Murphy said...

I think it's also important to remember, Morganovich, that USIP and MFG is only one part of GDP. So, just because it may be below pre-recession levels doesn't mean it's not driving growth nor it's not a main pillar of the economy.

 
At 2/15/2012 1:51 PM, Blogger morganovich said...

"you'll see NatGas under "Utilities" in the final line item of the report. That's what I'm basing this on."

but how do you get from "utilities" to "electricity". i get my gas and electric from different utilities.

my gas is not used for electricity, but for heat and cooking.

many companies use it as an input or to drive heat in processes or compress or liquefy it to fuel vehicles or whatever.

 
At 2/15/2012 1:53 PM, Blogger VangelV said...

this starts to look like nuclear fission.

is is possible we are funding federal deficits by buying mortgages?


Not only is this possible it is very likely. This is not exactly new. Every time that the Fed and Treasury wanted to goose the economy during the 1990s and early 2000s we saw the GSE balance sheets conveniently expand and regulators conveniently look away from the Fannie and Freddie accounting gimmics.

This was the point that Ron Paul was making in 2001 and 2002 when he was using a balance sheet analysis of the GSEs to suggest that the implicit guarantee needed to be ended. The GSEs and the Treasury were in bed together and had a relationship that wound up being very convenient for the ruling Administration and the GSE management bonuses but terrible for taxpayers.

You must have read all of the critiques about this before. The Mises Institute people, Jim Rogers, Marc Faber, Peter Schiff, James Grant, John Embry, Eric Sprott, and many others have written about this for quite some time. This is why they have argued that the bond market bubble is coming to an end. You can't keep using foreign central banks, the primary dealers, government controlled pension funds, and GSEs to keep buying your bonds without a serious increase in production that would keep price inflation from appearing for a while.

I think that the only thing that has saved the USD and the UST market has been the stupidity in Europe and the general weakness in the developing world. Since nothing has been fixed and you are likely looking at Romney, Santorum, or Obama as the next President there is no change of anything positive happening on the political front. It looks like both parties are being set up for a collapse in popular support and it would not be surprising to see around 10% of the next Congress sit as independents or third party candidates. If you have not loaded up on physical gold and safe oil shares you are not being careful enough.

 
At 2/15/2012 1:58 PM, Blogger morganovich said...

jon-

the economic terms are recession, recovery (for the growth back to pre recession), and expansion one you pass the prior peak.

my point is that is the economy is supposed to be in expansion (per gdp) but manufacturing is still in recovery, hopw can it be the pillar of growth?

it seems like a laggard, not a leader.

this is the sort of mistake people not used to working with percentages tend to make.

imagine an economy of 200.

100 is services, 100 is manufacturing.

recession hits. services drop to 90 and manufacturing drops to 80.

then, recovery comes.

services rise to 105, manufacturing rises to 95.

services are up 17%

manufacturing is up 19%.

so people say "it's manufacturing leading". but that's not really true. it's still below pre recession levels and services are into expansion.

that seems to be the case here. manufacturing seems to be less far along in terms of recovering and moving to expansion that the economy as a whole.

that's why i wonder why people are calling it the leader.

 
At 2/15/2012 2:14 PM, Blogger Jon Murphy said...

That's fair enough, Morganovich, but I'm not sure anyone is calling it a leader of recovery out of the recession for the overall economy. From what I understand about the blog post here is that manufacturing is growing at a faster rate than USIP overall. Since Manufacturing is a (rather large) component of USIP, it is leading there. In fact, much of manufacturing is about pre-recession levels, and New Orders (a leading indicator of manufacturing production) are climbing at an even faster pace and also above pre-recession levels. Where we are really seeing the hold back is in Utilities, Paper, and Defense Capital Goods. Most everything else is soaring.

 
At 2/15/2012 2:15 PM, Blogger morganovich said...

v-

yeah, but this is so much more pronounced. this is the whole mortgage market, not just 25%.

and banks are not holding anything that they originate anymore, just tossing it and levering govvies.

there use to be some firebreaks here. the treasury can basically print money now and worse is doing so by buying risk.

it also creates a terrifying dependency at the banks. they are essentially leverage junkies.

it's a really scary time.

i am deeply glad to have dual citizenship and offshore assets and corporations.

this big rally in the financials since november has me baffled.

who is looking at these balance sheets and thinking "i gotta get me some of that"?

used to be you could hide in companies with big cash positions in a tape like this, but not this time around.

it's gonna be more like a sea anchor than a value anchor.

 
At 2/15/2012 2:18 PM, Blogger morganovich said...

jon-

mark calls it that all the time.

this comes right from the post this thread is based on:

"Manufacturing remains the main pillar of the economy," and it's true that today's industrial production report provides further confirmation that American manufacturing is at the forefront of the economic recovery. "

unless they changed the definition of "forefront" sure sounds like a claim that manufacturing is leading the way to me.

 
At 2/15/2012 2:20 PM, Blogger VangelV said...

this is a terrifying idea as it puts money supply in the hands of the treasury, and makes me think of louis Xiii.

am i missing something here?


Perhaps I have spent far too much time reading
Rothbard and Mises, or listening to Casey, Sprott, Embry, Schiff, Faber, or Rogers but I see nothing new in what you are suggesting. Volker was right when he predicted a few years back that deflation would not be in the cards as long as the Fed and Congress could play liquidity games. Every slowdown has been met with an increase in government spending and new injections of liquidity. The banks 'borrow' for free and buy bonds that yield a bit of interest. They can't lose on the transaction and know that the money to pay them back will always be printed if necessary. Their only risk is systemic but that is not very important because they have little choice but to keep playing and will do so until the game is over and they either become insolvent or are holding worthless paper money that has no purchasing power.

Keep in mind that no fiat money has ever ended well. The theory tells us that it the end all fiat money will be devalued to its intrinsic value as paper. History suggests that the theory is right. On the other hand, commodity money systems are fairly stable. While government meddling, political pressures, and fractional reserve indiscretions create bubbles that burst regularly they are usually quite small and very manageable. In the aggregate, losses for depositors were typically less than the deposit insurance costs that they have to pay today. Everything was much more stable and mild deflation that saw savers gain purchasing power slowly over time was very common. The periods of inflation coincided with times when commodity money systems were abandoned to fight wars. I see no reason to suspect that it is different this time around. We are nearing a time when many currencies will wind up worthless and when many governments will fall because they robbed savers of purchasing power as they enriched the financial system and the privileged class that had access to newly printed money first and took advantage of that privilege.

 
At 2/15/2012 2:20 PM, Blogger morganovich said...

also:

take a look at the fed data i linked.

real industrial output is 6% below the pre recession peak almost 12 full quarters after then end of the recession.

i'm not sure how you get to "soaring" from there.

either there is something off in manufacturing, or the rest of the recovery and the length of the recession were over and understated respectively.

 
At 2/15/2012 2:27 PM, Blogger morganovich said...

i was with you until you said this:

"On the other hand, commodity money systems are fairly stable."

commodity money systems are disastrous around recessions.

they, in the long run, did not really fare better than fiat and led to epic problems with trade balances that completely destroyed numerous regimes.

the economic calamity of the dark ages was greatly exacerbated by all the precious metal going to the middle east/persia.

commodity currencies turn trade deficits, which as not harmful in any real sense, into calamities.

they are also inherently delfationary.

gold might work in a world with 0.5% growth, but at 3-4$, it's deflationary and harmful.

maybe if you used a currency based on somehting more useful and expandable like kilowatts, it could work, but from what i have seen the best results have come from fiat currencies run by fully independent CB's with a specific mandate to target low inflation and nothing else.

the bundesbank was very successful as was the d-mark.

oh how the germans must be regretting giving that up...

 
At 2/15/2012 2:39 PM, Blogger VangelV said...

it also creates a terrifying dependency at the banks. they are essentially leverage junkies.

it's a really scary time.


This is why I said that the banks don't care. They are technically insolvent so they are just happy to keep existing by helping the Treasury and Fed carry out their plans. All credit booms have to end in tears and this one is no different.

The only thing that we can do is make sure that our own plans take into account the possibility of fiat money losing its purchasing power and that we can survive a period of turmoil that lasts a year or two. But be careful about it. I read of a man who saw the troubles brewing in Europe in the 1930s and decided to sit out the inevitable war by cashing out and moving to a small out of the way island in the South-Western Pacific. He was right about the war in Europe but chose badly. The island was Guadalcanal.

 
At 2/15/2012 2:52 PM, Blogger juandos said...

Makes me wonder just how many of the durable goods manfacturers would be considered 'small businesses'?

From Gallup polling: Health Costs, Gov't Regulations Curb Small Business Hiring

February 15, 2012

Nearly half of small-business owners name these issues

PRINCETON, NJ -- U.S. small-business owners who aren't hiring -- 85% of those surveyed -- are most likely to say the reasons they are not doing so include not needing additional employees; worries about weak business conditions, including revenues; cash flow; and the overall U.S. economy. Additionally, nearly half of small-business owners point to potential healthcare costs (48%) and government regulations (46%) as reasons. One in four are not hiring because they worry they may not be in business in 12 months...

 
At 2/15/2012 3:03 PM, Blogger morganovich said...

"This is why I said that the banks don't care. They are technically insolvent so they are just happy to keep existing by helping the Treasury and Fed carry out their plans. All credit booms have to end in tears and this one is no different. "

in a sense, it's defacto nationalization.

people really seem unaware of what happened to debt in the 200-7 period and how much of what meager growth we saw it drove. eventually you run out of strong enough drugs to cure a hangover.

that guadalcanal story is wild.

ouch.

i doubt it will come to that in st kitts.

one of the smartest guys i talk to (david eninhorn at greenlight) has over $2 billion in physical gold in a bank vault.

i can see the attraction, but it scares the hell out of me too. gold has been nationalized before.

coins in your floor safe are one thing, but that kind of pile attracts broke governments.

 
At 2/15/2012 3:19 PM, Blogger VangelV said...

commodity money systems are disastrous around recessions.

It is not true. There is no valid historical evidence of this. Commodity money forces malinvestments out of the system and ensures that liquidation takes place. That is not a bad thing. It is what is actually needed to have a sustained recovery.

they, in the long run, did not really fare better than fiat and led to epic problems with trade balances that completely destroyed numerous regimes.

Really? Which commodity money system destroyed any regime?

the economic calamity of the dark ages was greatly exacerbated by all the precious metal going to the middle east/persia.

Not at all. The dark ages were dark because a change in yields led to far less grain production and to a collapse of Rome after it had devalued its money. Note that the Roman Republic was strong as long as its money was strong. Note that the introduction of paper money in China brought the end of Tang, Song, and Yuan Dynasties. It almost brought the Ming Dynasty down but the process was reversed when commodity money was reintroduced.

I think that I see the problem. What you have been taught is not exactly true. As such you place far too much faith in money that has no theoretical or historical support and ignore money that has both. I suggest you take a look at one or more of the following.

Paper Money Collapse: The Folly of Elastic Money and the Coming Monetary Breakdown

How an Economy Grows and Why It Crashes

The Theory of Money and Credit

Money, Bank Credit, and Economic Cycles

The Case for Gold

Currency Wars: The Making of the Next Global Crisis

If you have kids or are a hard core Monetarist or Keynesian buy the Schiff book. My kids loved it and so did many of their friends. My 13-year old also liked portions of Ron Paul's, The Case for Gold and really liked Rothbard's book.

If you read carefully, try the Theory of Money and Credit.

Rothbard's, What Has Government Done to Our Money, is very short, very logical, and very clear. If you want a much more detailed picture read his, Man, Economy, and State with Power and Market: The Scholar's Edition.

My friends really liked, Paper Money Collapse: The Folly of Elastic Money and the Coming Monetary Breakdown. The book was easy to read and very clear.

I particularly loved Jesus Huerta de Soto's, book, Money, Bank Credit, and Economic Cycles.

 
At 2/15/2012 3:28 PM, Blogger Benjamin said...

Vange-

You should read Scott Sumner. He is the Best Economist going.

Market Monetarism is the right approach.

Gold is for the Theo-Monetarists and Econo-Shamans. Financial voodoo-dolls and monetary astrology. You don't want to hang with those people.

 
At 2/15/2012 4:42 PM, Blogger Jon Murphy said...

imagine an economy of 200.

100 is services, 100 is manufacturing.

recession hits. services drop to 90 and manufacturing drops to 80.

then, recovery comes.

services rise to 105, manufacturing rises to 95.

services are up 17%

manufacturing is up 19%.


So, I've been thinking more about this.

Let's assume that the growth rates remain constant into perpetuity. Would not manufacturing be leading this recovery?

Different assumption:

Assume We have an economy where mfg is 98 and service is 2. Recession hits and mfg falls to 90 and service falls to 1. A recovery occurs and now service is at 4 and mfg is at 96. Since service has surpassed it's pre-recession peak (in fact, it doubled it), can we say that services are leading the economic growth?

I use the second example because, I think, in your example you assume two even aspects of the economy and, given your set of assumptions, your conclusion is correct. I think, however, given the diverse nature of the US economy, we can't say that the split is 50/50. Also, we'd need to look at the magnitude of decline (in absolute terms) for both manufacturing and the service sector.

Regardless, the original point you made is valid: manufacturing does still have a little way to go before it returns to the pre-recession peak. Some sectors of manufacturing (machinery & equipment manufacturing comes to mind readily) have already surpassed the pre-recession level where as others (defense capital goods and paper, among others) remain depressed. However, I don't think we should be so caviler to dismiss gains in manufacturing (especially when the popular narrative is it is dead).

The US economy is growing. Is it a stellar growth? Not really. But all signs are point to this recovery not only being real, but sustainable. PMI has been above 50.0 for 30 months (a sign the manufacturing sector is expanding), the stock market has been rising (a sign of growing corporate profits), retail sales has surpassed pre-recession levels in both real and nominal terms, the USLI is growing, corporate yields are down, signalling improving demand for corporate debt, the housing market has begun to grow above year-ago levels, albeit mildly but growth nonetheless. Office space rents are rising, nonresidential construction is growing slowly but surely, our trade volume is at record levels, wholesale trade has surpassed pre-recession levels, and the economy is adding jobs hand-over-fist.

Do I think 2012 will be a year of everyone rolling in the dough? Of course not, we still have a long way to go. But this are getting better. The economy is growing and approaching pre-recession levels in many markets (construction being the obvious exception). 2012 will be a difficult year, I promise you that, but things will be better than 2011.

 
At 2/15/2012 4:53 PM, Blogger VangelV said...

commodity currencies turn trade deficits, which as not harmful in any real sense, into calamities.

No, they do not. They regulate economic activity by forcing producers and consumers to adjust. Keep in mind that the greatest period of growth and prosperity for the West took place under a gold standard. The most damaging event for the future of the West, WWI, took place after the gold standard was abandoned.

they are also inherently delfationary.

That is not a problem. There is no major deflation under a gold standard, only a slow and persistent increase in the purchasing power of savings and a higher standard of living. A 50% increase in the standard of living after a century is not exactly a catastrophic development for anyone.

As I read your postings I notice that you have bought the Monetarist/Keynesian critique hook, line, and sinker. But human nature, theory, and history are against those positions. When someone is given the power to rob people of purchasing power by creating money out of thin air that power is used to take advantage of savers and consumers. On the other hand, under a commodity system even the most inflationary episodes are very minor because the supply of money is so large and annual production so small that even a major new discovery cannot have a big effect over time.

I suggest that you look at the period during which the US went back on the gold standard after the end of the 19th century. High real growth. A huge increase in employment. A huge increase in the standard of living. All in a period of falling prices.

gold might work in a world with 0.5% growth, but at 3-4%, it's deflationary and harmful.

It never has been before. Look at the period I cited above. And please cite the theory that shows us that there is some optimum amount of money that society needs and that governments and bank cartels can provide that amount without harming the economy.

maybe if you used a currency based on somehting more useful and expandable like kilowatts, it could work,...

What is more useful than a medium of exchange? Gold is not just a trinket or a metal used for jewellery. It is the free market's choice of a monetary media.

...but from what i have seen the best results have come from fiat currencies run by fully independent CB's with a specific mandate to target low inflation and nothing else.

Nonsense. There is nothing independent about central planners who have the ability to print money.

the Bundesbank was very successful as was the d-mark.

oh how the germans must be regretting giving that up...


The Bundesbank was the creation of Konrad Adenauer and Ludwig Erhard. Both were very sympathetic to the Austrian School and ensured that the bank would be quite responsible. The Bundesbank was successful because it inflated the least. It would have been more successful if it had used a hard currency system instead. If money printing were the key to success the Bundesbank would have been less successful that other CBs.

As I wrote above, doing some reading might help you understand the issue better.

 
At 2/15/2012 5:02 PM, Blogger VangelV said...

i can see the attraction, but it scares the hell out of me too. gold has been nationalized before.

Then buy silver. It has a large industrial use as well and cannot be taken away easily. As for previous nationalisation episodes, few people turned in their gold. The feds just got the easily available stuff.

And keep in mind that was only the US government. Governments in other parts of the Western world were not strong enough to try it.

 
At 2/15/2012 5:38 PM, Blogger morganovich said...

v-

read "the ascent of money" by feguson on the dark ages. the shortage of silver was a severe issue.

depressions were much more common under commodity currency.

the inherent appreciation of money made people loathe to deploy it, especially in downturn. deflation feeds on itself and is highly pernicious to growth, especially at post industrial revolution growth rates.

look at the constant problems in britian around the silver balance with china and the repeated opium wars. never would have happened under fiat.

"Bundesbank was successful because it inflated the least. It would have been more successful if it had used a hard currency system instead"

nonsense. it was successful BECAUSE it targeted 1-2% inflation. gold standards are delflatioanry. show me any system that has survived persistent delflation and not suffered greatly.

look, i completely agree with you about all the vulnerabilities of fiat money, but it CAN be managed. it just has to be formulaic and away from politicians.

commodity standards get abused too. look at FDR and all the other arbitrary gold seizures and repricings.

 
At 2/15/2012 5:41 PM, Blogger morganovich said...

the theory is simple V.

gold is a non productive asset.

if it appreciates by just holding it, the it disincentivizes marginal investment.

houses drop in value instead of increase.

debt has higher real rates.

that all depresses growth in favor of shiny rock investing.

 
At 2/15/2012 5:47 PM, Blogger morganovich said...

jon-

i'm not sure what you intend to demonstrate with your example.

to be realistic, the economy is what 25% manufacturing and 75% services.

in light of the latter allegedly being in expansion and the former maybe halfway recovered, the math gets pretty stark on what's driving recovery.

"But all signs are point to this recovery not only being real, but sustainable"

on what do you base that statement?

jobs are not recovering. GDP (delflated with CPI instead of the shenanigans they used) has been flat for 2 quarters.

driving and air miles are down, so is energy use, retail sales are pretty much entirely being driven by inflation, so are restaurants.

none of that is consistent with real recovery.

personally, i think it's being massively overstated and that the rest of the economy is still in recovery, not expansion and that underestimation of inflation is leading to growth figures that are not real.

down chemical seems the poster child here.

revs weer up, but volumes down it was all prices driving the top line. units down 4%, prices up 6%.

i think most of the economy looks the same, but we are undercounting inflation and so mistaking it for real growth.

there has NEVER been an economy in expansion in all of US history with this little job growth.

 
At 2/15/2012 5:55 PM, Blogger marmico said...

IPDMAN v. GDP

Production:durable manufacturing was a main pillar of the economy in the 1990s. It is just playing catch up this decade after disaster struck in the late 2000s.

You can browse all categories of industrial production here.

 
At 2/15/2012 7:56 PM, Blogger Che is dead said...

This comment has been removed by the author.

 
At 2/15/2012 10:26 PM, Blogger VangelV said...

The US economy is growing. Is it a stellar growth? Not really.

The US economy is growing? I would hope that after a trillion plus dollar bailout we would see some growth. But growth that was paid for by such a high price is not sustainable. And eventually the debts incurred to pay for that growth will have to be paid back. What exactly happens then?

I think that too many people here are very confused about how a real economy works. A real economy is about production of goods and services not about the increasing prices of such goods and services that are adjusted away. The way the government statistics work if every town in the US built a pyramid that is paid for by money borrowed from China the BLS would show great growth. The fact that the pyramids were a waste of resources would not matter. Well, that is what much of the so-called growth that is being reported is. Spending more billions on defending Europe or meddling in Syria is not a productive use of taxpayer dollars. Bailing out the unions of bankrupt US automakers is not a productive use of taxpayer dollars. Adding trillions in bad mortgages to the balance sheets of institutions that are backed by the taxpayer is not a productive activity. These are all games of desperation played by politicians trying to save their sorry arses and hang on to power.

What is next? A false flag attack on Iran? A trade war with China and India? Another QE attempt? Sorry but the credibility of the Fed and Treasury were destroyed a long time ago. Yes, we might have a nice little liquidity induced boom but sooner or later we will have to pay for our sins. And when we do we will be on our own.

 
At 2/16/2012 3:02 AM, Blogger Ron H. said...

morganovich: "look, i completely agree with you about all the vulnerabilities of fiat money, but it CAN be managed. it just has to be formulaic and away from politicians."

That sounds a lot like: "If we can only get the right people in charge of it." I don't think human nature allows for any such people.

"commodity standards get abused too. look at FDR and all the other arbitrary gold seizures and repricings."

That's hardly a fault of the standard, and sounds instead like an argument against government control of the money supply under any standard.

 
At 2/16/2012 9:26 AM, Blogger morganovich said...

ron-

"That sounds a lot like: "If we can only get the right people in charge of it." I don't think human nature allows for any such people."

not at all. believe me, no one hates that idea more than i do.

but it's not necessary with a CB. the bundesbank showed us that.

set an explicit inflation target of 1-2% and nothing else. the rest becomes formulaic. third graders could do it. it's about as difficult as pressing harder on the gas when you go up a hill and letting up coming down to keep your speed at 65.

add any other mandate (like growth or smoothing the business cycle) and i totally agree, you get a disaster.

but there is nothing difficult about inflation targeting (assuming you have a good inflation measure).

 
At 2/16/2012 9:27 AM, Blogger morganovich said...

"That's hardly a fault of the standard, and sounds instead like an argument against government control of the money supply under any standard."

this is a double standard ron.

you blame fiat money for the abuses of its managers, then blame the managers for abuse under gold.

there is no difference between the 2.

i think you are being inconsistent and unfair.

 
At 2/16/2012 2:29 PM, Blogger VangelV said...

but it's not necessary with a CB. the bundesbank showed us that.

set an explicit inflation target of 1-2% and nothing else. the rest becomes formulaic. third graders could do it. it's about as difficult as pressing harder on the gas when you go up a hill and letting up coming down to keep your speed at 65.


But even if we assumed that what you claim is true, which it isn't, why is stealing 1-2% of purchasing power necessary for a sound economy? I would think that it would be better if we protected the purchasing power of the currency so that young workers would have an incentive to save for their own retirements rather than setting up a situation in which the state plays a bigger and bigger role because of a slow but steady transfer of wealth from workers and investors to the financial system and the state.

but there is nothing difficult about inflation targeting (assuming you have a good inflation measure).

First, the 'measure' will always be manipulated for political purposes because the bank only has the power given to it because of the government. No central banks is really independent.

Second, there is no way to actually measure inflation in the sense that most people here think. (Price inflation.) Each of us has a unique basket of goods and services that has its own price changes. The only thing that you can target is the increase of money and credit. But given the reality of fractional reserve banking that is a very messy business that is beyond the ability of central planners.

Third, we still have the issue of how it is that central bankers know what the correct inflation rate is. I would argue that it is better to have a gentle decline in prices.

Fourth, we still have the morality problem. Stealing purchasing power is not a good thing because indirect theft is not amy more virtuous than direct theft.

 
At 2/16/2012 2:38 PM, Blogger VangelV said...

this is a double standard ron.

you blame fiat money for the abuses of its managers, then blame the managers for abuse under gold.


No. The managers can't abuse anything under a gold standard. They can only do the damage when they go off the gold standard.

That is a huge difference that you refuse to acknowledge because it does not fit with what you were taught in school by your Keynesian or Monetarist professors.

 
At 2/16/2012 2:58 PM, Blogger Ron H. said...

"you blame fiat money for the abuses of its managers, then blame the managers for abuse under gold.

there is no difference between the 2.

i think you are being inconsistent and unfair.
"

I blame the managers in either case, but fiat money just begs to be abused, as we see from recent events. At least a commodity money is dependent on a supply of something that can't be easily controlled by government, unless of course, it's stolen outright, as FDR did.

I've come to believe that as long as government controls money, and the supply of it, we will be on the losing end.

"set an explicit inflation target of 1-2% and nothing else. the rest becomes formulaic. third graders could do it."

Perhaps we would be safer if third graders did it. :)

Even if formulaic, someone or someones must be responsible for it. At some point they may determine that 1-2% is too much or not enough.

And, the problem I see with targeting ANY rate of inflation, is that when that rate is well known, that rate will be baked into all business activity, so its effect is lost.

By the way, while many commodies might serve as money, gold is most often considered as it has so many of the characteristics required of money, and has been chosen throughout history by most people, and by every civilization on Earth.

 
At 2/16/2012 5:24 PM, Blogger morganovich said...

"Even if formulaic, someone or someones must be responsible for it. At some point they may determine that 1-2% is too much or not enough. "

just like they could confiscate all private gold and reset the price in arbitrary fashion.

this makes it no different than gold.

privately run money is always an interesting topic, and one far easier now that in the past.

30 years ago, it would have been economically devastating.

you'd have dozens of currencies and exchange rates and would fall way short of an optimal currency area. transaction and informational costs would be outlandish.

today, IT would mitigate some of that, but it's hard to see how you would not still create quite a bit of friction unless you granted a monetary monopoly to someone, in which case, they are just an unelected FED that could do any damn thing they liked.

perhaps you could have 2 that competed, but that hardly led S+P and moodys to cover themselves in glory and probity.

there are costs and risks associated with any system.

personally, i think that a bundesbank type system is the most attractive.

gold as money has severe problems. it was one thing when economies grew 0.3% a year and there was no serious finance system and fractional reserve banking, but the world is not like that any more and returning it to such a state would be cataclysmic.

at modern growth rates, gold is severely deflationary. that's not a cycle you want to ingrain.

 
At 2/17/2012 4:44 PM, Blogger VangelV said...

just like they could confiscate all private gold and reset the price in arbitrary fashion.

They could? Now how would that happen if you chose not to give them your gold? And that is hardly an argument against the very clear historical observation that CBs and governments love to confiscate wealth by inflating. As we have argued above, that can't happen in a commodity money system where bubbles tend to be much smaller and liquidations swift and certain.

this makes it no different than gold.

But it does. If you want to create massive inflation for people holding gold you have to come up with a huge new supply of it and work to get it out of the ground. But as the California and Australian gold strikes showed even a huge gold rush is not capable of creating much in the way of meaningful inflation.

Doing the same in a fiat money system is quite easy. All you have to do is to lean on the printing presses and drive interest rates lower and lower. While you cannot direct the price inflation exactly you can certainly make sure that some asset classes a lot of it.

privately run money is always an interesting topic, and one far easier now that in the past.

30 years ago, it would have been economically devastating.


Not at all. Thirty years ago it was fiat money that was on the ropes. Without Volker the USD would have vaporised. But even with Volker the USD has lost more than half of its purchasing power since then.

you'd have dozens of currencies and exchange rates and would fall way short of an optimal currency area. transaction and informational costs would be outlandish.

Actually, there would be no exchange rate issue. The exchange would be fixed by the ratio of weight of the commodity that was backing the currency. This makes transaction costs quite low, which is why trade under the classical gold standard was so easy and widespread. A dollar issued by the Royal Bank of Canada that was backed by ten grams of gold would be worth two dollars issued by Wells Fargo that was backed by five grams of gold or ten Pounds backed by one gram of gold issued by Lloyds. No hedging would be required because everyone would be looking at the grams of gold being exchanged, not the currency used.

today, IT would mitigate some of that, but it's hard to see how you would not still create quite a bit of friction unless you granted a monetary monopoly to someone, in which case, they are just an unelected FED that could do any damn thing they liked.

No friction is required. You can have someone like Visa, Master Card, AmEx, or your own bank issue a debit card that would transfer micrograms of gold, silver, platinum, or whatever else you want from your account to the merchant's account each time you made a purchase. You would not even have to touch the gold or silver to make use of it. Since everyone knows the definition of a gram you would not have to worry about currency exchange issues and would not have to hedge exposure to forex volatility.

The different institutions would have their own accounts at a clearing house to net out transactions on a regular basis. Audits would be quite simple because all you would really need are a few accountants and some accurate scales. The huge costs of the complexity that surrounds fiat money systems would evaporate.

 
At 2/17/2012 4:46 PM, Blogger VangelV said...

gold as money has severe problems. it was one thing when economies grew 0.3% a year and there was no serious finance system and fractional reserve banking, but the world is not like that any more and returning it to such a state would be cataclysmic.


This is an empty statement offered without any support. As I said, history tells us a lot about the folly and instability of fiat money systems. And it tells us about the wisdom and stability of commodity based systems. Isn't it time that you looked up the record? And learned the theory?

 

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