By now, even the most pessimistic of economy watchers have to admit that there has been a significant recovery in auto sales. Since hitting bottom in Feb. '09, sales of cars and light trucks have increased at an 18% annualized rate (31% in nominal terms). To be sure, the level of sales is still historically low. But what counts—always—is the change on the margin, and that change is very positive. Rising auto sales are having an impact all the way down the production chain: higher than expected sales result in lower than expected inventories, which in turn spark higher than expected orders for new cars, which then result in unexpected increases in orders for parts and materials. That has ripple effects all throughout the economy.
And it's not just rising demand that is energizing the auto industry. Rising demand is the by-product of increased confidence in the future, the return of liquidity to the financial markets, new growth in private sector jobs (which, according to the household survey, have increased by over 1.5 million so far this year), strong demand for U.S. exports, a 9% increase in industrial production, and record levels of corporate profits. It's the increase in the economy's output (supply) that has enabled the increase in auto sales (demand).
It's not surprising therefore that Ford's stock has risen almost 900% since Feb. '09, and today reached a new post-recession high. This recovery is for real.
dreck and drivel post. canned.
ReplyDeleteExcellent post and analysis Scott. Thank you.
ReplyDeleteNow that the election is over I believe we will see more signs of recovery. If the Republicans don't mess it up and provide more confidence, we will see other signs of life.
ReplyDeleteThe fuel for the recovery is sitting in money market accounts all over the country. When we see confidence restored then we will see better times. Great post.
Scott, are you worried about the op-ed Bernanke wrote in the Washington Post defending QE2?
ReplyDeleteThis seems to completely misunderstand what drives investment and economic growth. We clearly have a Fed that believes easy money is the precursor to economic growth.
Stability in the money supply, lack of fiscal/monetary intervention, clear tax and regulatory policy, and interest rates that reward savers are the seeds to economic growth. Slanting the deck even more in favor of debt and leverage is not going to save this place one bit.
We are doomed...
"This approach eased financial conditions in the past and, so far, looks to be effective again. Stock prices rose and long-term interest rates fell when investors began to anticipate the most recent action.
Easier financial conditions will promote economic growth. For example, lower mortgage rates will make housing more affordable and allow more homeowners to refinance. Lower corporate bond rates will encourage investment. And higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion."
Public: I share your concern that Bernanke does not understand how the economy works. He also has a flawed understanding of how inflation works, since he is a strong believer in the Phillips Curve theory of inflation. This is one big reason why I have been worried about rising inflation, and I worry even more now. But I wouldn't go so far as to say we're doomed. There are many things that can happen to avoid disaster.
ReplyDeleteI agree doomed is overkill.
ReplyDeleteThe ideal outcome for me is some form of gold standard or complete stripping of Fed powers and opaqueness.
We are reaching saturation limits on the printing of money papers and debt levels. Debt burdens are never addressed unless financial crisis forces the hand of the abusers.
This means fiscal government needs to change its ways, monetary government needs to disappear into the sunset, and the markets need to take care of the rest.
Only a crisis can make this a reality. The previous crisis came and went...
Art Laffer has a nice way of explaining things that might help here. On the one hand, we observe that the Fed has hugely inflated Bank Reserves and the Monetary Base. On the other hand, we observe that although the dollar is weak and commodity and gold prices are strong, we have yet to see the dollar "collapse" to new lows in real terms against any objective benchmark. So what does that add up to?
ReplyDeleteSuppose you discover that there has been a bumper crop in apples--lots more than ever before--but you also observe that the price of apples has not fallen to new lows. You would be forced to conclude that the demand for apples must have risen by a lot, enough to mostly offset the hugely increased supply.
I think we have to draw the same conclusion when it comes to Fed policy. The Fed has eased by more than anyone could have imagined, but demand for dollars has increased by more than anyone could have imagined. The Fed may be overdoing it, but not by an extreme amount. So far.
On that basis it may be true but it depends on your benchmark. $/GOLD is seems headed for just that type of breakout indicator.
ReplyDeleteAdditionally, we have a Fed that thinks manipulating the price signals in the market will result in economic growth and consumer spending. Wholly smokes batman!
This seems like the 2008 slow motion real estate train wreck all over again.
ReplyDeletePeople making the argument Fed activities have not pushed indicators to fresh new levels yet all of the indicators are headed in the direction to do just that.
You are all about change on the margin and ALL signals on the margin suggest we are headed for a monetary nightmare...