Today’s update on new orders for durable goods is just the thing to blow away the deflation blues that have been poisoning the party over the past few weeks. Spending was up in April for this leading indicator. Actually, that’s no surprise. We already knew that last month was loaded with encouraging reports. Industrial production and retail sales, for instance, jumped last month. And job growth in April was the strongest in four years. But it’s May that suffered a change in sentiment in the markets. Figuring out if it’s just a temporary blip, or something more ominous that will show up in the economic indicators will take time. Unfortunately, April numbers won’t help figure out what’s what, even if they look good.
Author Archives: James Picerno
WHAT’S IN A NAME?
The Great Recession is over, but the Great Recovery isn’t quite here. That’s no surprise. We’ve been expecting a rather lengthy transition that’s betwixt and between for some time. A year ago we opined that “the recovery period, whenever it commences, will be unusually slow and sluggish.” We’ve reiterated the forecast a number of times. Perhaps future economic data will prove otherwise, although for the moment there’s no shortage of like-minded thinkers.
PONDERING A FUTURE OF DEBT
Everyone knows that the U.S., and most of the mature economies around the world, are swimming in a sea of red ink. The great unknown is the degree and form of the blowback. The optimistic view is that the pain will be relatively mild and that the recovery in the world economy will help nations grow their way out of the problem. But what if growth isn’t sufficiently strong or durable? In that case, the future may be quite a bit less rosy than the optimists predict.
GROWTH? PROBABLY, BUT IT WON’T BE EASY
The 12-month-old U.S. economic recovery is in “good shape,” a new survey of economists advises. The National Association for Business Economists reports that 46 panelists of macroeconomic forecasters “marked up their predictions for economic growth in 2010 and expect performance to exceed its long-term trend this year and next,” according to a press release published by NABE today. The upbeat view comes at a time when the deflationary risks appear to be rising, if only slightly, as we discussed last week (here and here). The great struggle between growth vs. contraction in the post-recession period has begun. Expansion still has the upper hand, but the minions of decline aren’t going to fade away quietly.
A LITTLE MACRO PERSPECTIVE…
Economist Scott Sumner explains why a free-market bias isn’t easily dismissed in analyzing cause and effect in economic history since 1980. He offers some data in support of his hypothesis “that neoliberal reforms lead to faster growth in real income, relative to the unreformed alternative.”
You can’t really “prove” anything in economics, of course. Meantime, you can hardly swing a cat without hitting a pundit who thinks that moving toward “neoliberal reforms” over the past generation was a mistake. The Great Recession is one reason for the recent surge of doubt, even though recessions have been arriving on a semi-regular basis since the beginning of economic time. Changing the economic paradigm doesn’t change this fact. Over the centuries, virtually everything has been tried. And still the contractions keep coming. On the other hand, adjusting incentives that promote capitalism seems to boost output during periods of expansion, at least when measured over long stretches of time.
The burden of proof is one those who argue that less capitalism and more government regulation is a net plus over the long term. Where’s the evidence? There isn’t any, as Sumner’s analysis suggests.
SUNDAY EXCERPTS: 5.23.2010
Dissecting the clues for the world economy: Japanese bond yields, declining prices for equities and commodities, a divergence of opinion about local finances, the influence of American finance regulation (for good or ill), and rethinking “too big to fail” vs. “too small to diversify” in banking regulation…
FREE BOOKS
Online MBA, a website dedicated to business education and related resources, is giving away a limited number of books on its recommended list. Among the titles offered: Dynamic Asset Allocation
A NEW SEASON OF RISK AVERSION…AGAIN
Earlier this week we pondered the potential for higher deflation in the months ahead. One of the suggestive clues was the falling inflation forecast as implied by the shrinking spread between the yields on the nominal and inflation-indexed 10-year Treasuries. At the time, the market was priced for inflation at 2.13% for the decade ahead (as of May 18). A mere 48 hours later, the market-based forecast dropped sharply: Treasuries yesterday anticipated inflation at 1.89%–the first reading under 2% since last October.
NEW JOBLESS CLAIMS RISE
Today’s update on last week’s new jobless claims is discouraging, and not only because filings jumped by a hefty 25,000 for the week through May 15.
IS THE RISK OF DEFLATION RISING AGAIN?
Last week, I advised that the unusual rallies in the dollar and gold this year may be a warning sign that deflationary winds are starting to blow harder. Historically, one falls as the other rises. The fact that both are climbing suggests the markets are worried about deflation…again. Today’s report on April consumer prices only strengthens the case for thinking that the “D” risk is climbing once more. It may be a false warning, but it’s getting harder to ignore.