Direction of the Economy

Manufacturing Activity Misses Expectations
By THE ASSOCIATED PRESS
Published: February 1, 2005

For the year, building activity increased 9 percent to $998.4 billion, the largest increase since a 10.4 percent rise in 1996.

At the same time, the group's measure of new orders declined to 56.5 from 62.6 the previous month. In addition, ISM's index of prices paid by manufacturers declined to 69 from 72 in December, showing some easing in the pace of increases in prices for the materials they use.
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The Economy appears to be in good shape, but is it? Construction sounds real good, though the Fed is expected to keep on with incremental Rate increases. The problem resides in the fact that growth in the Construction industry has been too good, with significant levels of growth in the two previous years. There are Those who estimate eighty percent of American Households currently hold Mortgages. Commercial and Government construction has not been as robust, but reflective of a booming Economy. Is the exhibitant rate of Construction sustainable this year?

The latter comment also expresses some risk. The lack of New Orders, while not suggesting any form of contraction, provides doubt as to the energy of the Recovery. This inside of the reality that Retailers are increasing Stockpiles of Unsold Goods. The index of Materials pricing lost three points, which cannot be solely a decline in Oil prices. It indicates a moderation of basic Metals pricing, always due to fewer New Orders. The latter fact means a slowing of Production--domestic and Worldwide.

The Tax break designed to bring Corporate Profits back to encourage domestic investment has shown little interest in Jobs-creating investment, according to the returned Fund schedules filed with the Treasury Dept. Most develop Plans to buyout smaller companies by Cash and Stock trades, and consolidation of the Labor forces. All expresses a lack of hard capital construction, alongside a growth in Financial Paper, already suffering a balloon effect from previous Tax credits, IRAs, 401ks, and Koughs.

Conclusion:
Retailers building unsold Stockpiles with decline of Factory orders could very well indicate a softening of Consumer Demand, something implied by rising Interest rates and levels of Consumer Credit in the face of slowing rates of Income increase (only 0.6% if the Microsoft One-Time Dividend is removed). Construction cannot serve as an economic spur, as it loses its economic momentum from higher Interest rates and already accomplished construction. The U.S. economy truly needs some form of limitation of Imports, simply to provide the economic propellent for expansion. lgl