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October 16, 2009 – Comments (2)

Signs of improvement 

A couple of positive pieces of economic data have been released over the past two days that I thought that I would mention.

First, this morning the Federal Reserve announced that U.S. industrial production rose at 5.2% annual rate during Q3 and that capacity utilization improved to 70.5% last month from 69.9% in August.

After falling for well over a year, this is the third consecutive monthly increase in cap utilization.  That's a good sign for the labor market. 

I have talked about the tight inventory levels in the auto industry right now in previous posts.  I'm sure that automakers accounted for a significant part of this increase in production.  They had slashed prod to an unsustainably low level so it was only natural that there would be some snap back.  Any sustained increase in cap util is a good sign that the worst of the Great Recession is over.

Industrial output up more than expected in Sept.

In other news, as usual the BLS published the weekly jobless claims Thursday morning.  The number of Americans filing first-time claims for unemployment fell by 10,000 to 514,000 last week.  This is the lowest level that claims have been at since last January.  As I also have mentioned in the past, we will likely have to see weekly claims drop into the low 400,000s before any job growth can be achieved.  We're headed in the right direction, but we've still got a long way to go.

Jobless claims, muted inflation boost recovery

The recovery has begun, there's too much evidence out there indicating that it has to ignore, however I believe that the road back is going to be a long, slow slog.  In my opinion, we will likely see sub-par economic growth for years to come.  Furthermore, it remains to be seen what will happen when the government decides to pull back on some of the action that it has taken to "fix" things, such as increasing spending, keeping interest rates low, buying Treasuries, etc...

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Spend the money already...

In other news, I found this quote from a Newsweek article particularly interesting:

As of the end of August, $151.4 billion of the original $787 billion has been outlaid or has gone to American taxpayers and businesses in the form of tax reductions...That's 19 percent. If projections made for September expenditures are right, "between one-fifth and one-quarter of the total $787 billion" was spent by the beginning of October...

In other words, nearly eight months after its passage, a large majority of the stimulus has yet to start impacting the economy.

I have been a fairly outspoken opponent of the stimulus package as it is was composed when it was passed since the beginning, but it is possible that this spending will help provide an artificial boost to growth in 2010.

The $800 Billion Deception

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Or better yet don't spend it at all

The Message of Dollar Disdain

Even with the optimistic economic assumptions implicit in the Obama administration's budget, it's a mathematical impossibility to reduce debt if you continue to spend more than you take in. Mr. Obama promises to lower the deficit from its current 9.9% of gross domestic product to an average 4.8% of GDP for the years 2010-2014, and an average 4% of GDP for the years 2015-2019. All of this presupposes no unforeseen expenditures such as a second "stimulus" package or additional costs related to health-care reform. But even if the deficit shrinks as a percentage of GDP, it's still a deficit. It adds to the amount of our nation's outstanding indebtedness, which reflects the cumulative total of annual budget deficits.

By the end of 2019, according to the administration's budget numbers, our federal debt will reach $23.3 trillion—as compared to $11.9 trillion today. To put it in perspective: U.S. federal debt was equal to 61.4% of GDP in 1999; it grew to 70.2% of GDP in 2008 (under the Bush administration); it will climb to an estimated 90.4% this year and touch the 100% mark in 2011, after which the projected federal debt will continue to equal or exceed our nation's entire annual economic output through 2019.

That's all for this week.

Have a great weekend everyone. 

Deej

2 Comments – Post Your Own

#1) On October 16, 2009 at 5:19 PM, davejh23 (< 20) wrote:

"By the end of 2019, according to the administration's budget numbers, our federal debt will reach $23.3 trillion—as compared to $11.9 trillion today. To put it in perspective: U.S. federal debt was equal to 61.4% of GDP in 1999; it grew to 70.2% of GDP in 2008 (under the Bush administration); it will climb to an estimated 90.4% this year and touch the 100% mark in 2011, after which the projected federal debt will continue to equal or exceed our nation's entire annual economic output through 2019."

I don't see how this can play out without destroying the dollar.  Hopefully, the administration is presenting overly pessimistic projections so that they look better when they don't double the national debt.  Even by 2019, US GDP might only be $14 trillion (if deficit spending is being pulled back)...only significantly larger if we continue to have growing deficits or significant inflation.  In 20 years we could have Federal debt as a percentage of GDP more than double, and possibly triple.  Interest payments would quickly become the largest line item in th Federal budget.  By that point, I don't think there would be a nation in the world willing to lend us money.

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#2) On October 16, 2009 at 7:17 PM, rofgile (99.30) wrote:

So, if new job losses claims weekly fall by 5000 a week (smoothed out), that means that we have about 20 weeks before job gains overtake.  That would place the job growth about 5 months in the future -> March 2010. 

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