Economic news remains largely awesome

[Undertoad]

http://www.washingtonpost.com/wp-dyn...120500682.html

Factory Orders Rise Unexpectedly

By MARTIN CRUTSINGER
The Associated Press
Wednesday, December 5, 2007; 5:37 PM

WASHINGTON -- Orders to U.S. factories rose unexpectedly in October although much of the gain reflected higher energy prices.

The Commerce Department reported that orders advanced by 0.5 percent in October, far better than the flat reading that was expected. However, much of the strength came from a big jump in the cost of petroleum and other energy prices, which pumped up orders at oil refineries and chemical plants. The orders figures are not adjusted for changes in prices.

Orders for nondurable goods such as petroleum products rose by 1.3 percent, helping to offset a 0.2 percent drop in demand for durable goods. The 0.5 percent overall rise in factory orders was the best showing since a 3.4 percent jump in July.

In other economic news, the Labor Department reported that worker productivity roared ahead at an annual rate of 6.3 percent this summer while wage pressures dropped sharply.

Meanwhile, a private sector report on labor market strength projected that business payrolls increased by 189,000 in November. That gain in the ADP report was well above the expectation for a modest gain of 50,000 jobs and caused economists to boost their forecasts for job growth in the government's employment report which will be released Friday.

6.3 percent is phenomenal; with dropping wage pressures is also phenomenal; and another 6-digit increase in jobs. If the housing mess is to impact the economy, it looks like it's going to impact a healthy one, which is great.

When I read AP stories about the economy, I always look for the "but". It's morphed into "although" and "however" here, signs that the economy has been strong for so long that writers are starting to hit the thesaurus, lest their copy be too repetitive.

[tw]

Originally Posted by Undertoad

When I read AP stories about the economy, I always look for the "but".

And during Nam, the economy also boomed as economic activity was so high. Obviously. Then those bills came due four and ten years later when all those bullets and bombs did not result in profits four and ten years later. The late sixties and early seventies resulted in that recession and stagflation of the late 70s.

The difference in that report and the same one in the 1970s - productivity increases. But back then, economic activity alone was proof of increased productivity. Today, those numbers are measured differently. Today, America does not have the same 'we fear to innovate' attitude that was more prevelant in the 70s.

Just like in the seventies, the world was chock full of American cash. Suddenly the world decided they had too many dollars (as China just said). Inflation meant the nickel became only worth a penny. A looming question remains what will happen to a world flush with American dollars and a country that is again importing significantly more than it exports. A country that still must pay $1trillion for "Mission Accomplished". We also ignored those same clouds during Nixon because the same economic reports during Nam said everything was fine and because that president also was a liar. He even lied about being a crook.

[Undertoad]

I can always depend on your but.

[classicman]

WASHINGTON -- Orders to U.S. factories rose unexpectedly in October although much of the gain reflected higher energy prices.

unexpectedly? humph!

[Elspode]

I keep waiting for those benefits to hit my house, but up until now, the increases in food, energy, interest rates on my properties, automotive repairs, and everything else that comprises day to day living, combined with the downturn in the residential construction industry which makes it so my employer is still looking to cut jobs, refusing to give a decent holiday bonus, and probably either less than cost of living or no raise at all...

...none of this seems all that awesome.

[Aliantha]

International economists are still predicting a massive recession for the US. I hope it doesn't happen for the sake of some of the people here I care about...and for the sake of the people I know IRL who will be affected. I've already stated that I think it's unavoidable though and got shouted down for it, so that's all I'm going to say.

[lookout123]

it is unavoidable. the count down to the next recession begins on the exact day the previous one ends. the economy is cyclical. the markets didn't allow a straight line from DJIA1000 to DJIA14000. the recessions are necessary to bring things back into line for the next running of the bulls.

it is a painful reality, but reality nonetheless.

[ZenGum]

I don't see how this bit is actually good news:

WASHINGTON -- Orders to U.S. factories rose unexpectedly in October although much of the gain reflected higher energy prices.

The Commerce Department reported that orders advanced by 0.5 percent in October, far better than the flat reading that was expected. However, much of the strength came from a big jump in the cost of petroleum and other energy prices, which pumped up orders at oil refineries and chemical plants. The orders figures are not adjusted for changes in prices.

Orders for nondurable goods such as petroleum products rose by 1.3 percent, helping to offset a 0.2 percent drop in demand for durable goods. The 0.5 percent overall rise in factory orders was the best showing since a 3.4 percent jump in July.

If I'm reading this correctly, it says that by volume factory orders haven't increased. Just that they've increased by price. And that is mostly because of the increase in oil and other energy prices.

You're buying the same amount of stuff (or perhaps slightly less) but paying more for it. Doesn't sound like great news to me.

The other bits sound good - but details are thin and I don't have time to follow the link now.

[xoxoxoBruce]

The orders figures are not adjusted for changes in prices.

[ZenGum]

Bruce, if that was a reply to me, that was exactly my point.

Maybe I'm reading this wrong but I don't think so.

However, much of the strength came from a big jump in the cost of petroleum and other energy prices, which pumped up orders at oil refineries and chemical plants. The orders figures are not adjusted for changes in prices.

As I read it, the situation was something like this (simplified of course):
In September, people bought 1 million gallons of gas for $1 each = $1,000,000.
In October, people bought 1 million gallons of gas for $1.05 each = $1,050,000.
Thus by value sales were up 5%. By volume they were flat.

It was the change in price that caused the "growth". This was why this passage was introduced with "however" - because it is taking the shine off apparently good news. And also why they mentioned that the figures aren't adjusted for changes in prices.

That's my reading. Anyone?

[ZenGum]

As for the possibility of a recession, the same article contains the following :

... Fed Chairman Ben Bernanke and Vice Chairman Donald Kohn .... noted that the economy is likely to slow considerably in the current quarter under the impact of renewed turbulence in financial markets.

On Capitol Hill, Peter Orszag, director of the Congressional Budget Office, said Wednesday that "the risk of a recession is now elevated" due to troubles in housing, the credit markets and rising oil prices.

.....

While overall economic growth, as measured by the gross domestic product, roared ahead at a 4.9 percent rate in the third quarter, the fastest pace in four years, GDP is expected to slow to a barely discernible 1.5 percent or even less in the current quarter.
[ I presume these are annualized quarterly rates - ZG]

Growth at such a slow pace would increase the risk that the country could dip into a recession, felled by the multiple blows of a prolonged housing slump, a severe credit crunch, rising energy costs and faltering consumer confidence.

So, definitely not in recession yet. There will be a downturn, that is pretty certain, but it might not go into the red. My guess is that it will. The financial crisis and the oil spike are driving it - but the falling dollar is helping to US exports and that might yet save the day.

[lookout123]

ok, again. the definition of a recession is at least two successive quarters of decrease, therefore you can't know if you are in a recession until you are at least 6 months in. I am not saying we are in one right now, i'm just trying to remind people that we could be 2 months into it already but we'd still be saying "when is it going to come? what's going to happen?"

recessions are a necessary and inevitable part of the economic cycle. they are not the result of some mistake on the part of business or government. recessions MUST happen. and the bigger reality is that unless you are one of the unfortunate ones who's job is on the line during a recessionary period, recessions aren't devastating to the average american. it is just one more thing to talk about on the evening news that will get you wound up and give you something to bitch about with your friends.

[Undertoad]

GDP is expected to slow to a barely discernible 1.5 percent or even less in the current quarter.

Growth at such a slow pace would increase the risk that the country could dip into a recession,

It's completely true; and yet since recession is two quarters of dropping GDP, one would only phrase it this way if one truly did not understand what one was writing about. Sort of as if a sportswriter were sent to cover a game and they wrote

In the third quarter, the hometown team scored a touchdown and point after, collecting seven points, increasing the chance they would win.

You'd read that and tear your hair out. But it's all true. There is nothing incorrect or nonfactual about it. It simply doesn't tell you anything about the game, and informs you that the writer is clueless.

[lookout123]

most of them are UT. if they actually knew what they were writing about they'd be in the game instead of talking about it.

[tw]

Originally Posted by Elspode

I keep waiting for those benefits to hit my house, but up until now, the increases in food, energy, interest rates on my properties, automotive repairs, and everything else that comprises day to day living, combined with the downturn in the residential construction industry...

Add to that report another fact. When adjusted for inflation, the average American income rose $7000 during Clinton's presidency and has dropped $1000 during George Jr's. This boom has gone mostly to upper most income levels. If American productivity has increased 6+% annually, then where is that 6+% annual increase in all American paychecks on top of the normal wage increases?

The question remains whether another industry can pickup where the housing industry is faltering. For example, word from the Silicon Valley over the past four years is the massive influx in finance people (MBAs) has significantly diminished. That is an indication that the computer, networking, and software industry (add telecom to the mix) is ready to pick up the load. If true, then a recession can be averted.

Other industries such as big pharma has a significant reduction of innovations in their pipeline while many major profit drugs lose their patent protection. Big pharma is not poised to avert a recession.

The finance industry really needs a major shakeout.

Domestic automotive industry has no significant product - just more talk.

Aerospace (ie Boeing) appears to have gotten their act together. But will their customers be able to maintain their purchases?

What other industries can help avert a recession? What other industries have significant innovation? Otherwise we have two choices. Increased inflation to maintain jobs, or recession fix so many industries and to avert inflation.

Costs for necessary goods that are not included in reported inflation numbers have increased on the order of 20%. That 6+% return on productivity - where does it appear in the average joe's income?