Friday, January 29, 2010

Another V-sign: Chicago Purchasing Managers' Index

I don't ordinarily pay much attention to the regional components of the Purchasing Manager's index (published by the Institute for Supply Management on the first day of each month), but the Chicago index published today was such a great example of how dramatically things have changed over the past year that I couldn't resist adding it to the list of V-shaped recovery signs. It's not surprising at all that GDP grew at a 5.7% annualized pace in the fourth quarter. The recession is definitely over, and the only issue going forward is how strong the recovery will be. I'm in the camp that says we'll see 3-4% on average this year and next, but the consensus (the "new normal") seems to be calling for 2-2.5%. I think the consensus is too pessimistic; even my 3-4% represents a fairly anemic recovery, given the depth of the downturn we've just lived through.

I'm calling for a sub-par recovery because of all the wasteful government spending that is going to drain productive resources from the economy. You can't just take money from the bond market and hand it out to people in the form of subsidies and expect that to stimulate the economy. Economies grow only when people are working harder and/or producing more. True real growth thus requires hard work and investment, not just handing out money and putting people to work on projects that the private sector has already decided aren't very productive. If we want a truly impressive recovery, we'll need to cancel the stimulus spending, restructure and reduce entitlement programs, shrink government programs in general, and lower tax rates across the board.


alstry said...

Some more good news....the Restaurant Index improved in December supporting a recovery.

Now the only question is how are we going to pay back all this debt we have accumulated creating this recovery?

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