I tend to agree with Karim and Fed Chairman Bernanke.
Modestly improving GDP growth with unemployment coming down very gradually until a consumer credit expansion takes hold.

Good for stocks, not so good for most of the people still struggling to survive, as the Obama administration continues to preside over what might be the largest transfer of wealth from bottom to top in the history of the world.

And no credible energy policy. We are completely at the mercy of the Saudis who can unilaterally hike prices any time they feel like it.

Karim writes:

  • ISM shows lift from inventories likely has run its course as inventory component crossed back above 50
  • But customer inventories remain low and employment index rises to second highest level since 2004
  • Going forward, private demand, not inventory rebuilding will drive manufacturing
  • Bernanke addressed this today (below) and seems to maintain his above consensus growth forecast

July June
Index 55.5 56.2
Prices paid 57.5 57.0
Production 57.0 61.4
New Orders 53.5 58.5
Inventories 50.2 45.8
Customer inventories 39.0 38.0
Employment 58.6 57.8
New export orders 56.5 56.0
Imports 52.5 56.5


While the support to economic activity from stimulative fiscal policies and firms’ restocking of their inventories will diminish over time, rising demand from households and businesses should help sustain growth. In particular, in the household sector, growth in real consumer spending seems likely to pick up in coming quarters from its recent modest pace, supported by gains in income and improving credit conditions. In the business sector, investment in equipment and software has been increasing rapidly, in part as a result of the deferral of capital outlays during the downturn and the need of many businesses to replace aging equipment. At the same time, rising U.S. exports, reflecting the expansion of the global economy and the recovery of world trade, have helped foster growth in the U.S. manufacturing sector.

To be sure, notable restraints on the recovery persist. The housing market has remained weak, with the overhang of vacant or foreclosed houses weighing on home prices and new construction. Similarly, poor economic fundamentals and tight credit are holding back investment in nonresidential structures, such as office buildings, hotels, and shopping malls.

6 Responses

  1. Mish says the GDP and PCE numbers are garbage.


    state sales tax collections show dramatic declines in retail sales

    First, the category of “personal consumption expenditures” includes pretty much all of the $2.5 trillion healthcare spending, including the roughly half which comes via government. When Medicare writes a check for your mom’s knee replacement, that gets counted as consumer spending in the GDP stats.

    In fact, the whole way that the BEA presents the GDP statistics points the public debate in the wrong direction. GDP stands for “gross domestic product”—that is, domestic production. But the breakdown of GDP is into expenditures categories—personal consumption expenditures, government consumption expenditures, etc.

    I think we need to move towards presenting GDP in terms of production, rather than spending. We need a shift from the consumer to the producer as our main unit of analysis.

  2. Where would one find specs on recent Fed spending and who it’s going to, as well as what is happening to the money from there (is it being “saved” or is it being circulated)? It seems obvious that the banks have access to money to lend and it sounds like it be going into the business sector.

    Hmmmm… did we dump a lot of old machinery on other nations for big $USD against their imports to us? Now we’re gearing up with the latest and greatest?

    1. I am confused why we did not start lots of new factories in destroit. What a colossal waste to just let everything wither and die that was established there.

      If labor was the problem, why not import lots of asians to work for cheap and without unions? There must be something about rules, regulations, taxes etc etc that is keeping companies away. I am fascinated that the heart of the american manufacturing empire for so many decades is now being bulldozed and allowed to return to nature.

      1. Fewer rules and regulations to start with. Let me set the playing field for you. A friend went to Hong Kong a number of years ago to teach. He told of death allowances issued to the factories over there. Older factories with higher death rates would by the unused allowances from newer factories. Unions? Not even in the same universe.

        Now, think about our banks becoming Ultra Banks and moving to a more “friendly” atmosphere. No Senate, no House, just slap some dentures in your wallet and talk to us.

  3. Warren it’s not just oil from the sauds, it seems we are hurting for rare earth metals from asia:

    Hot political summer as China throttles rare metal supply and claims South China Sea
    The United States and Europe have been remarkably insouciant about supplies of rare earth minerals so crucial to frontier technologies, from hybrid engines to mobile phones, superconductors, radar and smart bombs.

    By Ambrose Evans-Pritchard
    Published: 7:43PM BST 01 Aug 2010


    Lack of strategic planning by the West has allowed China to acquire a world monopoly on this family of seventeen METALS. Assumptions that Beijing would never risk its reputation as a global team player by abruptly strangling supply have proved naive.

    “One by one, US-based processing
    plants owned by German and
    Japanese firms switched operations
    to China”

    China’s commerce ministry has cut export quotas for these METALS by 72pc for the second half of this year. It is perhaps the starkest move to date in the Great Power clash over scarce resourses.

    The Pentagon and the US Energy Department are still scrambling to work out what this means for US security. An interim report from the Government Accounting Office (GAO) has laid bare just how delicate the situation has become.

    “The US previously performed all stages of the rare earth material supply chain, but now most rare earth materials processing is performed in China, giving it a dominant position. In 2009, China produced about 97 percent of rare earth oxides. Rebuilding a U.S. rare earth supply chain may take up to 15 years,” it said.

    Fifteen years?

    China’s rare earth blockade is becoming more piquant by the day as the country swaps threats with the US over the South China Sea. I leave it to scholars at The Hague to evaluate China’s claim to “indisputable sovereignty” over waterways that carry half the world’s freight shipping.

    What is new is that China has chosen to press the issue by calling these waters a “core interest” like Tibet and Taiwan, and is conducting live-fire naval and air exercises.

    Equally new is that the Obama administration has chosen to resist, a change of tack after sponsoring China’s fuller inclusion in world governance through the G20 and the IMF.

    “We oppose the use or threat of force by any claimant. Legitimate claims to maritime space in the South China Sea should be derived solely from legitimate claims to land features,” said Secretary of State Hillary Clinton . In plain English, “back off”.

    The foreign ministry called this “an attack on China” and accused Washington of trying to “coerce” smaller countries to take sides in the dispute. There is more than a whiff of “encirclement” fever in these exchanges, like German neurosis in the decade before 1914 that became self-fulfilling. A ring of states around China are indeed beefing up their military ties with the US. Why might that be?

    Cutting-edge weapon technologies are classified, but the GAO said the M1A2 Abrams tank and the Aegis Spy-1 radar both rely on chinese samarium. The US Navy’s DDG-51 Hybrid Electric Drive Ship needs neodymium, which enhances the power of magnets at high heat. The Hell Fire missile requires Chinese components, as do a host of functions in satellites, avionics, night vision equipment, and precision-guided munitions.

    Some of the METALS such as terbium, dysprosium, thulium, and lutetium, europium, cerium, and lanthanum are more important than others, but crudely speaking they are the salt of life for the high-tech revolution — sprinkled in iPads, Blackberries, plasma TVs, water filters, or lasers.

    The US Magnetic Materials Association said America has drifted into a “silent crisis” and needs to crank up its own supply chain within three to five years.”Immediate action must be taken to free the US from complete foreign dominance.”

    “China is taking advantage of WTO
    access to Western markets
    without fully opening its own”

    Yet the current situation is clearly intolerable. Congress is demading action through amendments to the National Defence Authorization Act. It is fair bet that the Western powers will soon funnel large sums of money into this very small niche.

    Beijing’s export curb is understandable on one level. China’s own industy will need most of its output within three or four years. The crunch will come one way or another. But as our Beijing correspondent Peter Foster has reported, the export limits seem designed to compel foreign technology companies to locate plants in China. This looks like a breach of World Trade Orgnaization rules.

    1. Someone fell asleep at the switch. There’ve been laws covering this exact situation since World War II (“Strategic and Critical Materials Stock Piling Act”). The Korean War-era Defense Production Act covers this as well, of course that law covers damn near everything (fortunately, I guess, the wage and price control section has since been repealed).

      In the fall of 2008, Bernanke refused to use the Fed’s 13(3) power to loan to non-banking companies and insisted Congress pass the TARP bill. Instead of consulting former GS execs for what to do (to a hammer, every problem looks like a bailout), Paulson should have called across the river and asked the Pentagon how’d they play the situation… And they would told him, the President “can make loans without regard to the limitations of existing law and on such terms and conditions as the President deems necessary”.

      “The President may make provision for loans (including participations in, or guarantees of, loan) to private business enterprises (including research corporations not organized for profit) for the expansion of capacity, the development of technological processes, or the production of essential materials.

      The day of the Lehmann bankruptcy, the CEO of GE– excuse me, the CEO of the large defense contractor General Electric, Jeff Immelt, personally told Paulson they were having trouble sellling their commercial paper because of the banking crisis. If GE can’t pay its bills, they can’t make their F414 jet engines the Navy needs to fly its F-18s, and the Marine patrols in Afghanistan who calls in air support ain’t getting it. Except for Ben Bernanke, everyone would agree that is wrong.

      Does a functional banking system provide “an essential material” for defense production? Maybe, maybe not (tell it to the Marines you’re leaving to die), but the Act gives the President total discretion if the loans are made during a declared National Emergency (which waives all legal restrictions). No federal judge and no congressman, two months before an election, would second-guess him. So yeah, Paulson could have avoided the TARP bill fiasco if he’d done a little more due diligence than calling in Neel Kashkari to his office.

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