Tuesday, July 12, 2011

More news which confirms the soft patch

The trade deficit expanded by more than expected in May, thanks mainly to higher petroleum prices, but as Brian Wesbury notes, oil prices fell in June so this should wash out and probably have little impact on second quarter GDP. But the contribution of trade to GDP is not as important as the ongoing, strong gains in exports, which have been growing at a 15-20% annual rate for the past two years and have surpassed their pre-recession high. This is very impressive, and good evidence that the U.S. economy is still among the world's most dynamic—strong export growth is helping to offset the weakness in finance and construction. It also reinforces the fact that global economic activity remains strong.

The UCLA/Ceridian Pulse of Commerce Index has been making slow upward progress for the past six months or so, providing more confirmation that indeed the economy has been in a "soft patch."


Benjamin Cole said...

Soft patch--or timidity on the part of the Federal Reserve?

The Fed has caved to the silly Chicken Inflation Littles.

You want to know where we are headed? Think Japan.

When a central bank favors inflation-fighting over economic growth, that nation is doomed to an economic twilight zone.

The Tale of Two Banks

China is growing rapidly–and not surprisingly, China’s central bank emphasizes economic growth over fighting inflation.

This is from “China Economic Issues” published Jan. 2010, by the Hong Kong Monetary Authority:

“In the basic specification with only growth and inflation when the official targets are used (Column 1 of Table 4), the coefficients on economic growth and inflation are highly significant, demonstrating the importance that the PBoC attaches to its legal mandate of maintaining stable
economic growth and low inflation. Among the two targets, the policy response for economic growth is stronger than that for inflation.
This suggests that the PBoC shows stronger reaction to each percentage-point deviation in economic growth from
the official target than that for inflation.”

The Bank of Japan, in contrast, for the last 20 years has made fighting inflation Job One.

McKibbinUSA said...

QEIII is likely imminent at this point...

Benjamin Cole said...

Dr. William-

I hope so. Bernanke is by nature a timid, cerebral fellow. He ain't no Volcker.

The whack-job element of the right-wing has conflated tight money with federal prudence. See Ron Paul.

Name one nation that has deflated its way to prosperity.

I can name many that reached prosperity with moderate inflation, including the USA in the 1980s and 1990s.

John said...

Republicans generally want a bad economy going into 2012. Don't look for much in the way of positive news. You can find all of it right here at CBP.