Worried about the economy?

Don't be.


"U.S.: Poised for a Big Comeback?

(Export Development Canada – Peter G. Hall)

Worried about the U.S. economy? You’re not alone. U.S. equity markets fell for six weeks in a row as nervous investors piled into U.S. treasuries, driving the 10-year yield down to 2.8%, the lowest level since November. Key indicators from various sectors of the economy have swooned. Is this just more evidence of a capricious market, or is this chapter 1 of the U.S. version of Japan’s ‘lost decade’?

Significant financial crises in advanced economies are normally followed by a protracted 4-7 year slump before job creation and growth gets back on track. Japan’s case redefines ‘protracted’. Losses from the collapse of the real estate bubble were catastrophic for Japanese business, rendering most of them insolvent. In many cases, banks opted to muddle through rather than foreclose, saddling banks with non- or poorly-performing loans, and companies with years of heavy debt payments and little incentive to borrow and invest. Is the current US situation any different?

Yes, in a critical sense. Aside from property developers, most U.S. non-financial corporations were not exposed to real estate. In fact, notwithstanding the financial crisis, right now they are doing better than ever. In Q1 2011, U.S. corporate profits hit an all-time high of $1.73 trillion. Moreover, balance sheets have never been more liquid: U.S. companies are sitting on almost $2 trillion of cash. Exports are helping, as they’re up 17% in the first four months of 2011 compared to the same period last year.

How are these corporations doing so well when so many indicators are pointing south? One of the keys is the U.S. productivity record. Over the past decade, the U.S. has consistently churned out 50% higher annual labour productivity growth than the OECD average, and maintained that growth through the ups and downs of the cycle. The result? The U.S. is now producing 1% more real goods and services than it did at the pre-crisis peak, but with 6 million fewer jobs.

However, there are limits to these productivity gains, and we believe that increased hiring is imminent. Despite May’s bevy of gloomy indicators, underlying demand still appears strong, and surveys of U.S. business hiring intentions are actually reasonably positive – suggesting that the current pause is a temporary wait-and-see approach to what looks like a transitory economic interruption.

What about all the cash? It has been in wait-and-see mode too, parked in anticipation of more solid growth. But it’s beginning to loosen up. U.S. banks are again reopening the credit taps. For 6 consecutive quarters, senior loan officers have loosened their belts. And they have lots of money to lend. U.S. bank profits in Q1 reached $29 billion, just shy of the pre-crisis peak, and they are sitting on $1.6 trillion of excess cash and reserves. As this money makes its way back into the economy, momentum is expected to build, helping to work off the remaining pre-recession excesses and paving the way for a true and sustainable recovery – for the U.S., and by extension, for the world.

The bottom line? Much is being made of the U.S. economy’s weaknesses, but it has fundamental strengths that are not too far below the surface. Investors are understandably nervous about current data, the non-continuation of QE2 and the ultimate withdrawal of fiscal stimulus. All the while, the U.S. economy is moving toward balance, and is armed to facilitate growth at that point. The bears who predict a lost decade for the U.S. economy might be sorely disappointed. Prepare for growth in 2012."


I know, debt debt debt--yada yada yada. Remember, an improving economy means improving ability to pay.

 

And...


"U.S. Private Sector Job Growth Far Exceeds Estimates in June

(RTT News)

Employment in the U.S. private sector increased by much more than expected in the month of June, according to a report released by payroll processor Automatic Data Processing, Inc. (ADP) on Thursday, with the data easing some of the recent concerns about the strength of the labor market.

The report showed that private sector employment increased by 157,000 jobs in June following a downwardly revised increase of 36,000 jobs in May. Economists had expected employment to increase by about 60,000 jobs compared to the addition of 38,000 jobs originally reported for the previous month.

"Payroll employment growth at this pace usually implies a steady unemployment rate, perhaps even a modest decline," Joel Prakken, Chairman of Macroeconomic Advisers, said in a statement from ADP. He added, "June's figures suggest that the economic recovery, which slipped in the spring, might have found new traction in early summer."

The stronger than expected private sector job growth in June was partly due to the addition of 130,000 jobs in the service-providing sector, which added jobs for the 18th consecutive month. Employment in the goods-producing increased by about a more modest 27,000 jobs in June, although that more than reversed the loss of 10,000 jobs seen in May. Manufacturing employment rose by 24,000 jobs.

The report also showed that employment at small and medium-size businesses increased by 88,000 jobs and 59,000 jobs, respectively, while employment at large businesses edged up by 10,000 jobs.

A separate report from the Labor Department showed that initial jobless claims fell by more than expected in the week ended July 2nd, although claims remain above the key 400,000 level. The Labor Department said jobless claims fell to 418,000 from the previous week's revised figure of 432,000, while economists had expected jobless claims to slip to 420,000 from the 428,000 originally reported for the previous week.

Robert Kavcic, an economist at BMO Capital Markets, said, "We now await tomorrow's non-farm payrolls report, which looks to be quite a bit better than the recently scaled back expectations."

The Labor Department's monthly employment report, which includes government jobs, is currently expected to show an increase of about 110,000 jobs in June. The unemployment rate is expected to hold steady at 9.1%."

 

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Ricter I cant help but notice that most of your economic "good" news is on the export front, probably because you are in the business of exporting.

Yes, exports have gone up because Bernanke, and Obama have crushed the dollar, but do you really think that this is good news to the overall population of the U.S. when the U.S. is the largest IMPORTER of goods/commodities in the world?

The only people gaining from this are businesses who export, while everyday americans are getting crucified based on the weak dollar.

 

Keep this on the down-low, but *whisper*, "buy American". Pass it on.

 

Like i said before, that doesnt help much when we need oil, and other imported commodities in order to survive.


Inflation over the last three decades is precisely the reason why the rich got richer, and the poor/middle class remained the same. People with no assets get crushed by inflation, while people with assets make out pretty good. Wages are not going to go up to correspond with the amount of purchasing power people lose when the dollar gets crushed, we have seen this happen for 3 decades, but you are cheering this on as if it is a good thing.

Liberals complain about how the discrepancy is getting wider between the rich and the poor, but the fact of the matter is that the poor and middle class are making the same they always made, the fed is simply crushing them through inflation, and the devaluation of the dollar.

 

I believe we've had time enough to adapt to inflation. Productivity comes to mind. Did I post that article?

<img src="http://www.gocurrency.com/img/inflation.JPG">

The new surge in currency devaluation:

<img src="http://research.stlouisfed.org/fredgraph.png?g=gB">

Oh, oops. Nevermind.

 

These are government inflation numbers, and the government now convieniently neglects to include the cost of energy/food in their inflation numbers.(which are the 2 most important numbers.)

Sure i can buy a plasma T.V. from China for a quarter of the cost, but what does that matter when i dont have enough food to survive, or gas to get me to my job?

Look at the price of a barell of oil in the 90's as opposed to today. I guess it doesnt matter that the price of oil in inflation adjusted dollars is 5 times today what it was in 1998.

Look at the price of food back then as opposed to today, you dont have to be a genius to realise that the food items on the bottom end are 5 times more than they were back then.

When i was in college i could buy a box of KD for 25 cents, hell that was basically my entire diet, the other day i went to the store and it was 1.69.(though i think they were screwing me at that price for kd) And this is only 8 years ago.

Are you really denying that this is happening? That kind of stuff crushes people on the low end.

 

Lets do the math on this, lets say a person is making minimum wage( in todays dollars) 8$ per hour is more than the average.

That means 8$ *40 hours per week, or 320 per week, * 4 work weeks that equals 1280 per month.

Lets say that person used to fill up on 25 dollars per week and it lasted him all week in the 90's thats 100 dollars per month.

So now 1 decade later he has to pay 5 times as much, and wages are still 8 bucks an hour, that means the same guy is paying 500 dollars a month, just to put gas in his tank. That is more than 1/3rd of his total salary of 1280 dollars per month.

Now lets say he has to pay double on his grocery bill as well. I would set a reasonable grocery bill for a guy on minimum wage who is scraping by at 200 per month back then.

Well lets just say that is now 2 times higher (not even the 5 times higher which it actually is.) This will mean 400 for groceries.

So due to inflation this poor asshole is now paying, 500 per month for gas, and 400 per month for groceries. That is 900 dollars gone from a 1280$ paycheque.

This guy hasnt paid for rent or any other bills yet at this price, and he is left with 380 dollars, out of his 1280. Where as he would have had about 980 dollars left over in the mid 90's.(100 for gas, 200 for groceries.)

Do you not see that as a big difference?

Actually looking at the positive side, atleast Plasma T.V.'s are cheaper then they used to be. Maybe he could finance one for 35 years, spend half of his last 380 disposable income per month on the t.v. and move into section 8 housing, so he doesnt have to be bothered with rent.

Wait a minute...... isnt this already happening?

 

Good points, Max, I'll try to get to them. In the meantime:


"Exports generated 9.2 million U.S. jobs in '10
The following is from the 6 July 2011 edition of the “American Shipper”.

The U.S. Commerce Department’s International Trade Administration reported Tuesday that exports supported an estimated 9.2 million jobs in 2010, up from 8.7 million in 2009.

Also, for every $1 billion of exports, more than 5,000 jobs are supported, the agency said.

New data from the ITA shows employment supported by manufactured exports plays a significant role in many states. Twenty-one states each counted more than 100,000 jobs supported by manufactured exports in 2009, with two states registering more than a half-million -- California at 616,500 jobs, and Texas at 538,500 jobs.

“As we continue to make progress in reaching the goals of the President’s National Export Initiative, we are confident that the number of jobs supported by exports will continue to rise,” said Francisco Sánchez, undersecretary of commerce for international trade, in a statement. “More businesses are reaching customers in foreign markets and seeing their sales rise which leads to more good-paying jobs in the United States.”

The report updates ITA’s April 2010 report, Exports Support American Jobs, and points out that more than ever, exports are central to a strong U.S. economy. The value of exports that support one job was $181,000 in 2010, an increase of $17,000, or 10 percent from the 2009 figure, as export prices and productivity have strengthened.

“The International Trade Administration is committed to helping U.S. firms find lucrative exporting opportunities around the globe, and ensuring access to these markets,” Sánchez said. “Our efforts improve the global business environment and help U.S. companies compete abroad, creating jobs at home.”


Clearly it's the right course correction to make, the NEI, but it also takes time and a pound of flesh.