The horizon is not so far as we can see, but as far as we can imagine

Good Manufacturing News

This is actual good economic news:

In the US, the Institute for Supply Management index – a key measure of industrial activity – rose from 54.9 to 58.4, its highest level since August 2004 and well ahead of economists’ expectations…

…he comforting US data followed strong evidence from Asia and Europe that manufacturers are beginning to ramp up production to meet stronger demand.

China reported record industrial activity for the month while the purchasing managers’ indices in India, South Korea and Taiwan also rose strongly.

India’s HSBC PMI rose from 55.6 in December to 57.7 in January, the strongest level since August 2008.

The eurozone’s manufacturing purchasing managers’ index rose to 52.4 last month, against 51.6 at the end of 2009.

The next thing to look for is idle shipping capacity being brought back on line.  This is still very fragile, mind you, as the stimulus fades, with the Federal Reserve poised to have to buy huge numbers of Treasuries, but I still think we’ll see a hiring recovery in the spring.  Not sure how long it’ll last, and it won’t be enough to relieve the huge pain out there, but there should be a recovery of sorts.

Bear in mind that as European and US stimuli fade, those countries will likely fall back into recession, the strength of the world economy will be located primarily in Asia for some time to come, for the simple reason that they are creditor nations and can afford proper stimulus measures.


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  1. max

    with the Federal Reserve poised to have to buy huge numbers of Treasuries

    I wish they were poised to buy huge numbers of treasuries. They seem to be aching to pull cash & reserves out of the system. If they were going to keep the lent reserves (give instead of lend) in the system, or they had or were going to conduct a huge open market operation, that would be different. But they didn’t. They just conducted the open market operation for the junk paper.

    Article in the WaPo last Sunday: all about haggling and how people can haggle down prices. Bad sign. Deflation is here.

    but I still think we’ll see a hiring recovery in the spring.

    Well, I hope so. The 4Q inventory restock plus the extra PCE was all Xmas demand. That’s going away, so if I had to assume, I’m going to assume that most retailers are going to go to selldown on inventory, so less demand, less (or no) restock. There was a pickup on software, but that seems to have been Windows 7. That leaves the housing bump that flattened out prices, which started to fade in December. There doesn’t seem to be a lot of there there, except for Xmas. So I dunno what’s up; I guess I’d expect a GDP drop in 1Q unless something else magically appears.

    They really need to unload some more cash via regular open market operations, instead of this junk paper recapitalization flimflam.

    The export pickup looked like the bright spot to me. If we’re selling to them and that keeps picking up, it will help a lot, but it’s unpredictable.

    [‘On the other hand, I expect we won’t be experiencing any capital strikes this year. That helps.’]

  2. Krugman seems to think that we’re about to hit that second dip. Can’t say I blame him. I just don’t see anyof the things that were wrong with the economy starting to get better, and I don’t expect to. People hired this spring may not be hired for long.

  3. Ian Welsh

    Max–the math is that unless foreign or domestic buyers massively increase their purchases of treasuries the Fed is going to have to buy treasuries. So I think they will.

    Cujo: we’ll see. I’m really unsure on the short term details of how this’ll play out, but given the essential reduction of stimulus, I think the medium term picture isn’t that bright.

  4. The next thing to look for is idle shipping capacity being brought back on line.

    Idled shipping capacity actually is being brought back on line. Rail and air freight also seems to have bottomed. As you are right to point out, this is far from a sustained recovery. But the logistics news has been turning more solidly positive over the last couple months.

  5. max

    the math is that unless foreign or domestic buyers massively increase their purchases of treasuries the Fed is going to have to buy treasuries. So I think they will.

    Yep. I am crossing my fingers.

    [‘Otherwise we leave the end of the stimulus slide and find it a long long olympic drop.’]

  6. max

    BTW, it’s been bugging me for a year: during the big collapse train traffic in turn went into a rolling downward spiral. Once the stimulus came in, traffic popped back up and flattened out at about a 20% lower level. GDP did not drop commesurately. Couldn’t figure out why, it was driving me a little crazy. Looking through the figures on business investment, I realized that that too had dropped off by very roughly 25% and then flattened out. Aha. Physical goods transported by train are going to wind up under business investment, more or less. D’oh.

    (Does this matter? Well, it used to be that I lived in an area that was going from ex-urban to suburban to urban in very short order. So I would have the strange experience of seeing migrating cranes, hawks, coyotes and the like alternating with being able to hear flights from the nearby airport, traffic in a place where the population was headed towards Manhatten density during the day, rail traffic at night, and freeway traffic. Staying in that kind of place for a long time (2 decades) while reading the business section gave me a good sense of how things were going economically, just by listening. Here, I only get the major rail and a little air traffic. But the rail part still seems a decent indicator.)

    At any rate, rail traffic has been dying back slowly all year and seemed to crater recently. The problem is, is that the boosts to GDP came from PCE increase (christmas, unemployment benefits, stimulus), business investment, exports and housing. So it’s a little worrisome to not hear the business investment going on.

    I was reading DeLong’s blog and he posted something about the breakdown of GDP to unemployment relationship. I twiddled the linear to figure out that a matching GDP contraction over 8 quarters was a -5% hit to GDP over 8 quarters. The reported bottom was at 3.83% according to CalcRisk.

    So I dug at the GDP numbers (need to do so some more) and it looks like the housing price V did the turnaround. If those prices had kept contracting, GDP would still be contracting, I think. (I need to actually go back and roll out the housing numbers and replot them as contracting for the last two quarters to see for sure.)

    Dean Baker keeps saying that the house flipping support in the stimulus would keep housing prices elevated and… voila.

    House flipping doesn’t add any jobs or any actual economic activity, so I think those GDP numbers are coming in initially way too hot. (Internal review suggests that my “model” (the one in my head that listens for train sounds and asks about employment and shelf stocking) may be slightly cold for the last six quarters or so, but review also suggests initial GDP reports are way way too hot, which matches what I’ve seen for this decade. Restate: initial GDP reportage has seemed way too hot and tended to be revised downward almost all decade long. The revised numbers have also seemed quite hot to me for the last 8 quarters.

    (Extra bonus: the GDP residual numbers (added 1996) have been positive for 8 quarters. They’re usually negative, moreso when the economy is growing well. The only similar period is ’47-48. I haven’t decided what that means yet: overreported growth? deflation? ongoing artifact hooking (meaning the numbers correspond well in pre-1996 periods)? misreported inflation? Haven’t decided yet. I should probably look that up.)

    So, yes, very fragile. A jobs bill through Congress would help immensely. We will see.

    [‘Sorry for ramble. Trying to make sense of my previous comment.’]

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