Permanent Revolution

Bill J on Thu 01, May 2008 @ 17:30

Bill J — 2008-05-01 17:30:29

Yes it certainly is a paradoxical situation, with a recession in terms of final sales and personal consumption but actual GDP growth.

Whether that's a recession seems to depend on which definition you pick. Most of the various bourgeois assessments seem to be more upbeat than at the start of the year, when many of them, like Goldman Sachs for example predicted a 1% decline in Q1. Of course this didn't occur, consumption did not fall at the rate they expected, industrial output held up and inventories recovered somewhat from the extremely large fall at the end of last year.

This growth of inventories may pose future problems, but even here things may not be what they first appear as JP Morgan explain;

"Inventory concerns less than they seem While the forecast of 1Q08 growth has been raised to 0.7%, more than all of that growth is accounted for by inventories. Concerns about inventory accumulation were reinforced by the March durables report, which showed that durables stocks at the factory level rose 1.1%m/m in March and at an 8.6% pace over the past three months, while factory shipments were declining.

However, these figures overstate the extent of nascent inventory problems. Source data indicate that real private inventory accumulation throughout the economy was miniscule in 1Q08, only about $5 billion at an annual rate (from a 4Q07 base of $1648 billion, in 2000 dollar terms). Official estimates will be released with the advance GDP report on April 30. The boost to growth in 1Q08 comes because inventories declined in the prior quarter. Expected 1Q inventory growth that is barely positive contrasts sharply with the situation entering many recessions. Prior to the 2001 recession, for example, inventories had been increasing at nearly a 6% pace. Moreover, even the situation in durables manufacturing is less worrisome than the headline figures indicate. Much of the increase in durables inventories is in the civilian aircraft industry and reflects work in progress for an industry with considerable backlogs. These inventories are a signal of increased output ahead, rather than a warning that cutbacks will be required. Inventories for durables-producing manufacturing outside the aircraft industry are growing at a more moderate 4.5% pace." https://mm.jpmorgan.com/servlet/OpenPubServlet?skey=TU1SQy00NDA1NDAtMSw0MjAsRExZX0MxX0ZFRUQA&Name=1302103.pdf

Either way we've still to see the Great Depression.

Bill J on Thu 01, May 2008 @ 18:39

Bill J — 2008-05-01 18:39:03

Wachovia make a similar point about the effect of the slow down in domestic demand on imports;

"Businesses are also cutting back. Investment in equipment and software fell at a 0.7 percent pace during the first quarter, while outlays for structures declined at a 6.2 percent pace. Homebuilding clearly remains mired in its slump. Residential construction plummeted at a 26.7 percent pace in the first quarter, marking the largest quarterly drop since 1981.

With all these negatives, it is still miraculous that overall GDP still posted an increase at all. The answer is somewhat surprising. A very large percentage of consumer goods are imported and the sharp cutback in consumer spending has led to a dramatic slowdown in imports. The decline in homebuilding is also cutting into imports. Just think of where all those door knobs, lighting, and plumbing fixtures are made today. So if you are wondering what happened to the recession, the short answer is that it has been outsourced along with the production of many of these goods. A better way of looking at the GDP numbers is real final sales to domestic purchasers, which subtracts out the trade and inventory data. This measure more closely captures what consumers and businesses are feeling today and still makes the case the domestic economy is in recession." http://www.wachovia.com/ws/econ/view/0,,4278,00.pdf

Graham B on Thu 01, May 2008 @ 23:41

Graham B — 2008-05-01 23:41:52

Really no question that the US is in recession and probably has been since January, and that the NBER will eventually call it as such. 0.6% growth in the latest 2008 Q1 release was a little better than most forecasts, but the mix of figures - build-up of inventories, falling personal consumption in goods, decline in non-residential structures, as well as residential investment still nose-diving - all point to a further fall in GDP growth in Q2, to around zero. The big question is the second half of the year? http://www.globalinsight.com/Perspective/PerspectiveDetail12397.htm Good summary here, and forecasts Q3 at 2.0 - 2.5% http://online.wsj.com/public/resources/documents/info-flash08.html?project=EFORECAST07 WSJ survey of economists forecasts Q3 at 2.1%. And many see little improvement from this throughout 2009. This would seem to point to a ‘mild recession’ of average length, but a period of sluggish growth for the US economy afterwards. Whatever it is, it is a long way from what much of the Left are predicting at the moment.

Bill J on Fri 02, May 2008 @ 17:47

Bill J — 2008-05-02 17:47:28

I think the thing that will decide it definitively is what happens next. The March construction figures showed a strong recovery in non-residential construction http://www.census.gov/const/www/c30index.html

When most of the bourgeois commentators were forecasting a big decline. Basically they believe that there is a three year lag behind residential construction, when in fact I reckon non-residential generally picks up when residential slumps as the cost of construction falls. Interestingly manufacturing is one of the strongest growth construction sectors, presumably on the back of the export boom. Similarly pay rolls haven't shrunk at the pace they anticipated either. http://www.bloomberg.com/apps/news?pid=20601087&sid=aabt.Q79iKsE&refer=home

What is more important perhaps is what it means for the USA in the longer term. How about? The end of consumer capitalism? The myth that Joe Soap could join the consumption glut on the basis of never-never borrowing is over, finished. The polarisation of the class divide. A marked reduction in working class living standards. And a decline in the power of US financial hegemony world wide? Just a thought.

Bill J on Fri 09, May 2008 @ 20:47

Bill J — 2008-05-09 20:47:27

Further info confirming the likely up rating of US GDP estimates for Q1, due to the greatly improved balance of payments, we have referred to in the past; http://www.wachovia.com/ws/econ/view/0,,4295,00.pdf This when combined with the better than expected non-residential construction figures, could lead to quite a substantial rise.

Arthur Bough on Wed 02, July 2008 @ 17:00

Arthur Bough — 2008-07-02 17:00:18

If you look at the reality we have had a Credit Crunch for about a year, a financial as opposed to an economic crisis that is probably the worst since WWII, and we have oil at over $140 a barrel. The fact that we are only guessing whether the US is in a recession - and no one is suggesting other major economies are, though Japan might not be too far off - I think tells us something about just how strong the udnerlying world economic situation is!

I'm not sure that the cause of the US slowdwon is the housing market crash. In fact rarely is the housing market the assassin of the economy. Nearly always it is the other way round. The real cause of the UK housing Crash in the early 90's was the rise in unemployment. Really, provided people continue to have paid employment with at least constant wages falling house prices can have no real economic consequecne. People can still pay their mortgage if they have one. Negative equity is only of significance IF you have to sell your house. Of course, in conditions where people use rising house prices as an ATM i order to borrow more in order to spend that will have economic consequences, but I don't think we should overrate it. The majority of consumer spending continues to come from income not from such borrowing. Moreoever, as I have pointed out elsewhere a reduction of that borrowing and the subsequenct debt servicing cost CAN actually be a basis for stronger consumer spending as more is available to spend rather than to cover interest payments.

I think the real cause of the US slowdown is in fact the series of Rate increases put in place by the FED a couple of years ago, which have had their intended consequence of reigning in the excess liquidity put into circulation during the downturn. The fact the Fed believes it can do that - and the ECB is about to raise rates too - plus the fact of the rapidly rising inflation around the world is again a sign of the underlying strength of the world economy.

Therewas some discussion on the BBC last week of news coverage of the economy, and comment that the coverage is overly pessimistic. I agree, and to be honest I wonder how much is motivated by concern at the sight of rising wages throughout Europe, the succesfult tanker drivers strike, and the threats of possibe action by Public Sector workers, and an attempt to sow a mood of pessimism amongst workers aimed at dampening wage expectations. The facts certainly do not confirm the message of the doommongers.

UK Software company on Wed 02, December 2009 @ 14:17

UK Software company — 2009-12-02 14:17:46

Cool,

Keep up the good work,

Anyway, thanks for the post