[Stinky]

"U.S. Economic Outlook"*

by Michael H. Moskow
President and CEO,
Federal Reserve Bank of Chicago

"Growth Outlook

Going forward, the big question is whether the most recent burst of demand will sustain itself through the end of this year and beyond, or whether, this one will falter like the previous bursts that we have seen. As Yogi Berra said, it’s dangerous to make predictions, especially about the future. But, let me say that I think there are reasons to be optimistic that growth will remain solid.

The first reason is productivity. Strong productivity gains have kept real personal incomes rising throughout the recession and recovery, and should continue to be a key foundation for growth into the future. And, even though some of the recent job losses are attributed to efficiency gains, strong productivity growth has historically been good for employment. Productivity generates extra income, and income creates new jobs. This takes time—some research suggests that there can be a lag of several quarters—but it is widely accepted that the eventual effect on employment is positive.

Second, the recent round of tax cuts should also stimulate growth. According to Administration estimates, these tax cuts will put nearly $150 billion into consumers’ and businesses’ pockets between this summer and the end of next year.

Third, the Federal Reserve’s ability to maintain an accommodative monetary policy should help keep financing costs for consumers and businesses at low levels.

Furthermore, many of the factors that have hindered business spending—including worries about terrorism, corporate governance issues, and excess capacity—should have a diminishing impact moving forward.

Terrorism remains a real concern, but companies have been tightening their security and taking steps to reduce the potential impact of any new attacks. On the corporate governance front, many issues continue to be addressed by various regulatory agencies and by increased diligence in corporate offices and boardrooms. While we still hear of some improprieties, their revelation is more symptomatic of good, not bad, governance.

Finally, although there are still appreciable amounts of excess capacity in some industries, this will change over time. Capital equipment depreciates – and does so very rapidly for computers and many other high-tech investments. Thus, much of the excess will be reduced – a good portion of it as technological innovation makes older machines obsolete.

With all of these reasons for optimism, forecasts of real GDP growth have increased since the summer. The consensus of private sector economists now has growth averaging 4-1/4 percent during the second half of 2003, up from 2-1/4 percent in the first half. They also expect growth to average just a little under 4 percent next year. The bottom line is that growth this year should be stronger than it was last year, and growth next year should be stronger than it will be this year.

But, it is important to remember that the economy always faces risks of shocks – both positive and negative. On the upside, business sentiment could rebound more dramatically than expected and produce a pop-up in spending. On the downside, there is the risk that weak labor market conditions could cause consumer spending to lose its forward momentum. While this isn’t the most likely scenario, I have to admit that until we actually book a couple of quarters of solid output growth and see the beginning of an employment rebound, there will be some doubts in my mind whether we are, at last, out of the woods. "

http://www.chicagofe...3/oct022003.cfm

[Stinky]

Business Outlook Survey for September Federal Reserve Bank of Philadelphia

Philadelphia Federal Reserve Senior Economic Analyst Mike Trebing summarized the survey:

"The region's manufacturing sector continued to improve this month. For the fourth consecutive month firms reported an increase in overall business activity. Indexes for new orders and shipments indicated increases for the third consecutive month. Despite an overall improvement in manufacturing this month, firms polled say factory employment was lower again. Firms' expectations for growth over the next six months continued to improve in September, and a significant share of firms indicated that they had recently increased their fourth-quarter production plans."

http://www.phil.frb....091803_bos.html

[Stinky]

Doubts about Recovery
by DW Mackenzie
[Posted October 08, 2003]

"The popular press has adopted a more optimistic tone regarding economic conditions. The reasons for this are clear. It appears that the current recovery is picking up pace. Recent reports indicate that second quarter GDP for this year increased by 3.3%, instead of the earlier 3.1% estimate. This is more than double the GDP growth rate from the preceding two quarters. Analysts expect 4% or higher growth for the following two quarters, with some predicting 6 to 7% growth. Falling inventories and strong spending, some say, indicate that this recovery will continue."

http://www.mises.org...sp?control=1337

(Careful: ther rest of piece is bearish.)

[Stinky]

I am finding it hard to find good news to post here.

I'm supposed to ignore the news as an investor as its prone to mood swings. Euphoria and Despondency. Right?

Right now, the markets are bullish but I don't see much bullishness in the news. I see nothing but bad news in the news. Where is all the extreme bullishness and complacency folks talk about?

Getting myself all twisted in a knot and confused.

Sigh. Think I'll just go have a drink.

Does anyone have a really good perspective on the long term market I could read or offer me some perspective?

Being a newbie and never having paid attention till recently, its very easy to drown in this sea of information.
I have no idea what to think other than so far, I have been flat out wrong....up till now.

Thanks,

Stinky

[mjkst27]

some advice

1.) don't confuse the stock market and the economy.

2.) The same bad news coming from two different companies is all the same bad news. All economic players are suffering the effects of the corrupt monetary system. It's simply one big problem, not a bunch of small ones.

JHMO

[Stinky]

Is it not true that at some point, the markets reflect what is happening in the economy?

I understand that true technicians do not believe one has anything to do with the other, but don't fundamentalists believe that the markets are a reflection of what is happening in the economy?

Thanks, Stinky

[FauxCaster]

IBHT

[mjkst27]

we're in a highly speculative environment, and the specs are really the Fed's only constituency. Economy slowing down? Juice up the specs with a rate cut and hope they game bonds and stocks long-side. And hope somehow the "wealth effect" gets some bucks into Joe 6' pocket. Sorry, not happening. The efficacy of rate cuts on the real economy now consists of debt expansion for consumption only, while marginal corporate projects becoming attractive on an IRR basis due to rate cuts ended a long time ago. It's not hard to see how markets could do well in such an environment while companies in the real economy continue to cost-cut. It's much easier to PowerTrade ™ the markets than actually build/innovate a product and sell it.

Market psychology will turn bearish soon enough. Personally I'm still thinking a fib 13 months off the October 02 lows = November 03 for a major turn to the bear view.

[Stinky]

What does ibht mean? Anyone?

[machinehead]

Stinky, on Oct 8 2003, 06:35 PM, said:

Is it not true that at some point, the markets reflect what is happening in the economy?

No. The inverse is true. Often (but not always) the economy at some point reflects what was happening in the market. The typical lead time is 9-12 months.

So the market's rise during the past 12 months "predicted" the stronger third quarter growth that will be reported a few weeks from now.

But that stronger growth has absolutely no implication for the market. It was already "in the market."

Where the market goes from here -- up or down -- may have some predictive value in telling us what the economy will be doing next summer. The economy can't tell us anything about what the market will do, though.

[Sphinxter]

Stinky, on Oct 8 2003, 12:50 PM, said:

"The first reason is productivity. Strong productivity gains have kept real personal incomes rising throughout the recession and recovery, and should continue to be a key foundation for growth into the future. And, even though some of the recent job losses are attributed to efficiency gains, strong productivity growth has historically been good for employment. Productivity generates extra income, and income creates new jobs. This takes time—some research suggests that there can be a lag of several quarters—but it is widely accepted that the eventual effect on employment is positive.

Wow. There's so much wrong with these statements I hardly know where to begin.

How about with the most obvious?

Ummmm. Productivity is absolutely NOT correlated with rising real personal incomes except, possibly, of CEO's and other directors. In fact it is probably negatively correlated.

Look at farming. It takes 1/10 of the farm labor to plant and harvest an acre as it did 50 years ago. Farm real wages have been in a protracted deflation for two generations due to productivity. Ergo, you can't strictly link the two.

By example, if I own a plant that employs 100 people and earns $100 but then figure out how to do things more productively such that I can earn the same $100 but with 80 people, do I give the remaining 80 people 25% raises?

Heck no. I trim their health benefits and make them sweat out the fact that I might move the whole shebang to Mexico and that they're lucky to have any jobs at all.

OK I'm not that kind of guy but you get the point.

But beyond all that obvious crap, the average income for the median family has fallen these past three quarters. So have hours worked. Poverty has risen. Lots of things to indicate that personal income has NOT risen.

Except that way that the BEA measures this stuff indicates it has.

Don't forget that they have several imputations in their calcualtions. For instance a $300B imputed personal income adjustment due to the benefits enjoyed by all of us for free checking (not kidding on that one). Also a multi-hundred billion imputation for all the people who own their houses outright and are therefore enjoying 'free rent'. Not kidding about that one either.

Worse, it's an average across ALL persons in America, including Buffet and Gates and all the rest. It's entirely probable that the rich have been vacuuming more and more wealth their way but this should not be confused with an across the board "rising tide lifts all boats" kind of income increase.

Blah, blah, blah.

Suffice it to say real personal incomes have NOT BEEN RISING DUE TO PRODUCTIVITY GAINS!!!!

[Hypertiger]

In 93 I could go out an find a job within a week that paid $10 an hour

In 03 I can go out and find a job within a week that pays $11 an hour

My dad as a staff draftsman in 1977 for oil companies could make $25 an hour

My dad as a contract draftsman in 2003 for oil companies can make $24 an hour