Direction of the Economy

Graphaholics will find heaven in the latest Post by Menzie Chinn. Those without the innate gifted skills of Graphic arts should read the link to James Hamilton provided, before slipping through Menzie Chinn graphs ( Hint: Once you are confused about what is being shown, reread the notation under each graph, then begin to speculate). One may ask why study both Posts closely? They explain We are winning the Trade Wars-ex Oil imports, but that devaluation of the Dollar may not be the route to gain greater Victories in the Trade Wars. It also explains why further Victories are necessary: Imports are still 47% greater than American Exports. Devaluation of the Dollar, though, does not reduce the Dollar Cost of Oil Imports, which will rise in Dollar price with Dollar devaluation. Dollar devaluation will also raise the Cost in Dollars of other necessary Imports, while it will not provide the equal advantage to American Exports. Strengthening of the Dollar, on the other hand, readily raises the value of American Exports; this dependent upon the high quality and lack of Substitutability of Export Products from America in the Short-Run. I must qualify here, and state both Menzie Chinn and Hamilton may disagree with my interpretation of my evaluation of the findings presented in the Graphs.

Bloomberg report that the Institute of Supply Management’s manufacturing index fell to 49.3 in January (below 50 equals a Contraction). The ISM raw materials index rose to 53 from 47.5 the month before (but this possibly reflects automatic Price Schedules increases for the new year–little economic indication). The Institute’s New Orders index fell to 50.3 from 51.9, but New Orders are still expanding. The number of Orders Waiting to be Filled fell to 43, but in the face of expanding New Orders, simply reflects greater streamlining and Productivity. The Inventory index slid to 39.2; Some would claim this expresses Business doubt about future economic performance, but I would suggest it is beneficial, as Orders Delivery has also slowed to 52.7 and is proof that Business must increase Production activity simply to fill Orders. The Production index had fallen to 49.6 in January, but cannot stay there, as Manufacturers must fill Orders without built Inventory. Consumer Spending jumped in December by 0.7%, and all indications suggest that it is not slowing; Business will have to come back with a strong Spring and Summer forecast (contested by significant segments of the economic community, but the numbers say We will have another good Year). lgl