Monday, March 15, 2010

Industrial production continues to expand

U.S. industrial production rose a bit more than expected in February, overcoming weather-related difficulties and Toyota recalls. More importantly, however, the recovery in U.S. industrial output comes against a backdrop of a global recovery, as reflected in this chart. There is still plenty of room for improvement before production reaches the highs of 2008, but there are few if any roadblocks for the attainment of this goal. It's likely therefore that industrial production will continue to expand for the foreseeable future. It's nice also that the latest production numbers from Europe reflect a pickup in the pace of growth in recent months, whereas earlier estimates suggested a slower recovery. Japanese industrial production has virtually exploded, surging 32.5% in the past year. Expanding global output is also reflected in industrial commodity prices, which continue to set new highs after slumping in 2008.


Benjamin Cole said...

Hope these trends continue.
The recession is over already in China, India, most of non-Islamic Asia.

I sense the USA is becminig less and less of a locomotive every year. Sheesh, at this point, we may be deadweight on on the trian, and the cause of the recent train wreck.

Investing in Asia looks a lot mnore promising than the US right now.

alstry said...


It is clear that IP rose slightly in February, but don't you think a lot of that is companies still burning off the trillion and a half they borrowed last year. Add that to the $25 trillion in debt we borrowed from each other since Bush took office and we are now have over $50 trillon public and private debt that needs to be serviced. Much of the recent borrowing was consumed on worthless govenrment office buildings, granite countertops, and silly developments.

When Reagan took office there was only $5 trillion of total debt. Now we are building less new homes and less cars than we were in 1980. Tax receipts to our overleveraged bloated governments are evaporating. As we fire the over 20,000,000 over paid government workers, income tax receipts will only decline further requiring even more cuts.

How do you think we can ever service, much less pay back, the $50 trillion we owe each other now that bankers are slowing credit and tax receipts are contracting on the margin?


Benjamin Cole said...

BTW- a nice, nonpoliticized look at the global real estate bubble and bust, with a focus on US residential real estate is here..from a Fed guy...

Public Library said...

If the equity market is forwarding looking like you've stated in the past (alla shrugging off Obama etc etc), how come it is stalling out when the forecast is so rosy?

The usual everyone is so glum is not really the answer I am looking for. The media outlets are neutral to bullish at this point.

Public Library said...

I am not saying the equity market is not forward-looking. However, I do think the markets forecasting ability is weak in times other than great moderations.

Meaning, the market is good at getting things right when their is only one-direction to go. If there is any uncertainty, the markets guess is as good as yours.

Scott Grannis said...

Public: Why do you say the market is stalling out? We're within inches of the January highs.

As I see things, one year ago the market thought we were headed into a deep depression/deflation. The outlook was made even worse by the rapid leftward-shift in fiscal policy which promised a huge increase in future tax burdens. Since then the outlook has brightened considerably: It's obvious we have avoided a depression, and now the debate is whether the economy is growing by 2-3% per year or 3-4%. That alone would justify a 70% rise in equity prices from their lows. It's also now obvious that Obama's policies are facing real opposition, and his agenda is unlikely to be implemented. There is now the real possibility that the November elections will mark a significant change for the better on the fiscal policy front, with spending being reined in and taxes not rising as much as expected.

We are still in limbo on the healthcare issue, however, and I note that Intrade futures show that passage is likely. If healthcare does pass (though I don't think it will), this limbo will continue for quite some time, since I expect that the November election would become a referendum on the bill, and challenges to it would be many.

It's tough for the market to see through all this, and meantime we have the added worries of looming Fed tightening, Chinese tightening, Greek default, Obama's plunging popularity, etc. It's not surprising therefore that the market continues to run up against walls of worry.

I remain optimistic because I see continued signs of recovery in the economy and because I remain convinced that you should never underestimate the ability of the US economy to overcome adversity. I also believe the electorate is far to the right of Obama, and the people will not be happy until policies move more to the center. Should the economy continue to grow at 3-4%, and should policies become more favorable (less unfavorable) to capital and business, then I think there is still tremendous potential for equity prices to rise.