Wednesday, March 31, 2010

Factory orders--another V-shaped recovery

This chart shows New Orders for U.S. Manufacturers. The chart follows the pattern that characterizes nearly all recoveries: the steeper the recession, the stronger the recovery. The pattern has been confirmed empirically, and it was first conceptualized in 1964 by Milton Friedman as the "Plucking Model" of growth. New orders in the past year are up over 10%, and that marks a faster pace of recovery than the one that followed the relatively mild 2001 recession. Of course we are still well below the previous highs, but a rapid recovery such as we are seeing here and in many other areas of the economy all fit together. Importantly, this is all likely to have a synergistic effect, continuing to push the broad economy higher despite the fierce headwinds of faux-stimulus policies and aggressively accommodative monetary policy. At the very least, the economy wants very much to return to its former level of activity, and to accomplish that requires a lot more growth, more profits, and more jobs; all of which we are likely to see in the next year or so.


Benjamin Cole said...

Die recession, die, die, die!
Let's hope SG's crystal ball is right.

OT to SG: See

This is just one of many articles suggesting surface ships are more of a liability than an asset, militarily speaking. There are many more, some from within the Navy. It is a fun topic, steeped in history and modern-day politics. DR has other articles, and Paul Cohen of the US Navy suggested an all-submarine fleet as early as 1973, in Foreign Affairs magazine.

Interesting history note: It was recently learned that one of the ships sunk at Pearl Harbor was torpedoed, by a Japanese sub.

I only bring this up as you recently revealed service in the USCG, and might have an intellectual interest in this topic.

alstry said...

Thank goodness for that $1 trillion dollar deficit....look at this recovery go!!!!!

Could you imagine the recovery if Obama only borrowed a few trillion more??????

Our retirement accounts would be underfunded...but the recovery would be going gangbusters.

Whoooops...our retirement accounts are already trillions the criminal investigations begin.

John said...

Honeywell reported on their conference call that orders have picked up significantly in the last couple of months. They went out of their way to emphasize that new orders contributed to the earnings increase, and not just cost cutting.

Boeing is planning to ramp their aircraft production. I believe that one decision can move the unemployment needle over time. Literally thousands of subcontracters are affected.

If one doubts this matters take a look at their respective stock charts over the last year. The market sees it coming, even if a lot of others don't.

Scott Grannis said...

John: thanks for adding these positive facts. I'm still amazed at the reluctance of so many to embrace the notion that the recovery is real and likely to continue.

Benjamin Cole said...

BTW, the cover of the WSJ today is "Bonds Cap Epic Comeback."

Companies are able to issue high-yield bonds, in force.

I think very, very positive. SG comment?

John said...


Its always been this way. Near bottoms almost no one believes and near tops nearly everyone believes.

The negative comments were just as valid six months ago as now. Maybe more so. Yet look at a chart of the S&P 500 and you see an advancing market. The markets are anticipatory and forward looking. If you wait for the feelgood news to dominate, the markets will have moved months before.

John said...


I agree. You are seeing in the bond market the direct effects of the federal reserve's dramatic quantitative easing efforts that began during the fall of '08 as well as the reduction of short term rates to historic lows. Banks may still not be lending aggressivly (that will come later) but the bond markets are active and companies with decent credit ratings are having little trouble raising money and/or refinancing their debt on favorable terms. Good for the economy. This is an example of an economy slowly returning to normal times.

Scott Grannis said...

The huge rally in corporate bonds that started over a year ago is reflected in the credit spread charts that I have been featuring since late 2008. The decline in credit spreads is indeed very bullish for the outlook. Default risk is down, the economy is growing, profits are rising, markets are liquid, firms have access to credit, etc. Lots of very good fundamentals out there which is why I remain bullish.

Benjamin Cole said...

What I consider bullish is that corporations are able to issue high-yield debt, or junk bonds.

Such companies often "need to money" to stave off collapse or to grow.

They are not just refinancing debt.

So, this ability to isue high-yield debt should save some jobs and add some jobs too.