Monday, August 22, 2011

Monday Morning Economic Assessment

The US Industrial economy (if pipeline scheduling is correct) reclaimed a bit more ground last week, while consumer spending retreated. All models were revised as additional points were added to the respective samplings on which the modeling is based.

The Production Index (In terms of its 28-day moving average of gas-flow scheduling into US industrial facilities) rose for its third week in a row, gaining to 120.2 (vs last weeks revised 119.9). In its dailies, the measure lethargic, starting the week firm early-on but quickly softening as the week progressed.

The Consumption Index conversely fell for the second straight week, dipping to 139.6 (from last weeks 143.9). In its dailies the measure was choppy but overall soft as well.

The Inventories measure (the cumulative weekly difference between the Production Index and the Consumption Index) again continued in its long-term decline.

Overall, its the same-ol'-same-ol'... with the economy dead-in-the-water... along with the Federal Reserve.

Bear market in stocks starting to look a bit overdone (in terms of the gas-flows)... this does not look like anything like an earnings-hit for the third quarter but if anything the opposite given the "reverse" nature of the slow-down (it is business-confidence that is being hit... along with investor-confidence... but not consumer spending so it will be bullish for earnings, not bearish).

What is being hit right now (big time) is employment... and over the last three weeks one can see a real split in the "Republican" side of the US economy (business vs investment community) with the business-side looking like it liked the centrist-budget compromise (gas-flow-scheduling increased to industry briefly following the announced budget-compromise three-weeks ago, while investors discouragingly dumped their investments and consumers appeared little-changed in their spending habits).

This recent three-way split has me rethinking my 2-Party Republican-vs-Democrat Gas-Flow Theories... Perhaps we actually have a three-party system with Democrats representing the consumer, Centrist-Republicans representing business, and Conservative-Tea-Party-Republicans representing investors.

If you think about it, the theory makes sense as the business community has to bridge the gap between consumer and investor... delivering quality and economy to consumers balanced with earnings to investors... compromising along the way to keep things balanced to make the business work, even while consumers and investors focus in on their own bargains or profits.

Of course, government (like business) would have to also balance the needs of all three of these three groups (consumer, business, & investment), which it is having great difficulty doing given the political-divide in Washington where folks think the problem is fiscal.

Raising taxes on investors will not encourage them to invest more on new businesses and new employment. And cutting spending to consumers will not encourage them to spend more to soak up excess industrial capacity. What we have at the root is monetary-policy failure, with fiscal-policy failure attempting to negate that monetary-policy-failure.

Think about it... we dropped interest rates to zero and bumped deficit-spending past a trillion-dollars-a-year to boost the economy... with nothing to show for it. It is not supposed to work that way.