Altes Elliott-Wellen-Forum - Worse Than You Think / must read

Worse Than You Think / must read

verfasst von -- ELLI --, 04.02.2003, 15:44

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http://www.mises.org/fullstory.asp?control=1156
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Worse Than You Think
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by Frank Shostak

[Posted February 4, 2003]

<img alt="scale" src="http://www.mises.org/images2/data.gif" align="right" border="0" width="240" height="164">The
latest economic data indicate that the prospects for a sustained economic
recovery have been further delayed. The low interest rate policy of the Fed
remains the major factor behind this deterioration.

Last Wednesday the Fed announced that it would keep the
federal funds rate target unchanged at 1.25%—at a 41-year low. Also,
to encourage consumers and businesses to spend more, President George Bush
proposed a $670 billion tax cut plan.

The underlying view that continues to motivate policy makers
is that what drives the economy is demand for goods and services. However, it
is overlooked that increases in demand as such cannot grow the economy. What
is necessary for economic expansion is growth in saved resources that form the
basis of investible capital. It is the state of this pool of real funding that
dictates the rate of increase in the production of goods and services. Without
the availability of real funding, irrespective of how strong demand is, no
economic growth can emerge.

In a free and unhampered market economy, consumption and
production interact harmoniously with each other. In other words, consumption
is fully backed up by production while production is fully supported by
consumption. Whenever the central bank and the government introduce policies
that aim at boosting expenditure by both consumers and producers it disrupts
the harmony between production and consumption and undermines prospects for
economic growth.

The latest data indeed indicates that this is precisely the
case. The national accounts data for Q4 shows that the yearly rate of growth
in real consumer expenditure eased to 2.5% in Q4 from 3.8% in Q3
(see chart). In contrast to this, business expenditure on equipment and
software in real terms increased year-on-year by 3% in Q4 after growing
by 1.1% in the previous quarter and a fall of 8% in Q1 (see
chart).

 [image]

Consequently, the business investment-to-consumption ratio
jumped to 0.15 from 0.147 in Q3 (see chart). In short, the
adjustment process (i.e. adjustment towards harmonious production) was
reversed in Q4. The Q4 ratio is way above the 0.09 where we have
estimated a sustainable economic recovery can emerge. This in turn means that
any additional increase in the business investment to consumption ratio will
only further weaken the pool of real funding and thereby delay the emergence
of a sustainable economic recovery.

The latest manufacturing activity data indicates that there
is the possibility that manufacturers have lifted their activity in January.
If this is the case, then this is likely to result in the accumulation of
unwanted inventories. Needless to say, this also means more pressure on
corporate profits. This is bad news for the stock market. The
Chicago purchasing management index (PMI) rose to 56 in January
from 51.7 in the previous month. This was the 3rd
consecutive month that the indicator stood above the 50 mark, which
marks expansion. Despite this strengthening our monetary analysis indicates
that this rise is unlikely to be sustained (see chart).

 [image]

For the time being personal savings remain under pressure.
In December the personal savings rate fell to 4.1% from 4.5% in
November. The sharp fall in the personal income-to-consumption ratio indicates
that savings, and hence the pool of real funding, are under pressure (see
chart). Moreover, given the massive levels of consumer debt it is questionable
whether consumers can maintain their aggressive pace of spending by further
lifting their debt levels. We have estimated that in Q4 consumer debt-to-GDP
ratio climbed to a new record high of 0.81 from 0.808 in Q3
(see chart).

 [image]

In the meantime, the real GDP rate of growth decelerated
sharply in Q4. The GDP rate of growth slowed to a 0.7% annual rate in
Q4 from 4% in Q3. For 2002 GDP grew by 2.4%, following a 0.3%
increase in 2001. The cyclical component of real GDP fell to -196 in
Q4 from -134 in the previous quarter (see chart). Without
government spending, GDP contracted slightly in Q4. Within the government
sector, defense spending rose at an 11% annual rate (see chart).

 [image]

What's more, the yearly rate of growth of real GDP fell to 2.8%
in Q4 from 3.3% in Q3. Our monetary analysis, which is based on the
lagged yearly rate of growth of real money AMS raises the likelihood that the
growth momentum of real GDP will remain under pressure (see chart). In
addition to this, a sharp fall in the cyclical component of real GDP raises
the likelihood that the Fed may consider a further lowering of the federal
funds rate target which is currently at 1.25% (see chart).

 [image]

In the meantime, the number of help-wanted ads in major US
newspapers dipped in December. The Help Wanted Advertisement Index fell to 39 in
December from 40 in November. One year ago the index stood at 47
(see chart). Other reports also indicate that the job market is not getting
any better. The number of Americans making their first filing for state
unemployment benefits rose in the latest week by 14,000 to 397,000
(see chart).

 [image]

In addition to this, the consumer confidence index fell to 79.0 in
January from 80.7 in December (see chart). Moreover, in the week ending
January 26 the ABC/Money magazine consumer confidence index stood at -27,
its lowest level since December 1993 (see chart). Also, the University of
Michigan consumer sentiment index fell to 82.4 in January from 86.7
in December.

 [image]

Although durable goods orders increased by 0.2% in
December, after a fall of 1.3% in the previous month, the growth
momentum of orders indicates softening. The yearly rate of growth of
durable goods orders fell to 1.7% from 3.7% in November. The
cyclical component of orders stood at -2.2 in December against -3.1
in November and this was the 4th consecutive month that durable
goods orders were below long term trend (see chart).

 [image] [image]

On Friday the dollar also had its biggest gain in four weeks
against the Euro. The US dollar rose to $1.0771 per Euro from
$1.0823 on Thursday (see chart). The lagged excess money growth
differential between Euroland and the US points to a strong support for the US
dollar against the Euro in the months ahead (see chart).

 [image]

Soft economic conditions provide support to T-Bonds

The yield on the 10 year T-Bond eased to 3.97% in
January from 4.03% in the previous month (see chart). The differential
between the yield on the 10-year T-Bond and the federal funds rate fell to 2.59%
in January from 2.78% in December (see chart).

 [image]

US stocks weaken further in January

For the month of January the Dow Jones Industrial average
fell 3.5% (see chart), while the Nasdaq Composite lost 1.1% (see
chart). The S&P500 shed 2.7% in January from December (see chart).
For the time being a visible fall in our liquidity measure doesn't bode well
for the stock market (see chart). Year-on-year money AMS adjusted for nominal
economic activity fell to -0.6% in January from 1.3% in December.

 [image]

Conclusion

From the outset of what Greenspan calls this"soft
patch," the Fed has pursued lower interest rates, while policy makers
have pursued a policy of spending to stimulate aggregate demand. It should be
clear that neither offer a path toward rebuilding the foundation for future
economic growth.

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Frank Shostak is an adjunct scholar of the Mises Institute
and a frequent contributor to Mises.org. Send him MAIL and
see his outstanding Mises.org Daily
Articles Archive.

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gesamter Thread:

Worse Than You Think / must read - -- ELLI --, 04.02.2003, 15:44
- Re: Worse Than You Think / kein must - alte Denkchemata - AndrÃ©, 04.02.2003, 16:09
  - Re: Worse Than You Think / kein must - alte Denkchemata / sorry... - - ELLI -, 04.02.2003, 16:14