I have been studying this Post by James Hamilton, and traveling from his work to that of Menzie Chinn. What can you say about the Situation? Consumption increases were far more reliant on Inflation than Production, a even sadder commentary when specifying that most of the Consumption rise went into Imports. Menzie Chinn may find, by his log percentages, that Imports are rising faster than Exports again with the next Report. The Exports surge may yet be impressive for Brad Setser, though it is not likely to be joyous for American Production. Menzie Chinn’s discussion and graphs on the alteration of direction between preliminary and revised BLS estimates from positive to negative, something I have noticed for a while, might indicate a less-than-rigid Government devotion to modeling accuracy. Read between the Lines!
I do not feel as sanguine about the Employment picture as James Hamilton, the rise in GDP seemingly coming from higher Pricing, rather than from increased Production. Employment is buoyed by the fact We are entering the Summer months, but sale of higher-priced, fewer Products may leave Showroom floors emptier of more than Inventory. A real Concern of myself comes in the misdirected Subsidies implemented for the production of ethanol, a real element destined to reduce Employment in my part of the Country–the Midwest. The real factor here would state that Employment in the Construction industry would be down, except for those Subsidies. The real Injured Parties from the latest economic trends may be Small Businesses, traditional generators of the most substantive employment.
I do not think Ben Bernanke should be given Credit for the current situation, as James Hamilton would imply, though it may be a Soft Landing. I prefer to watch the Food Prices at this point, a high rise in Prices or sustained volatility past the Season’s harvests means a high level of Inflation has engrained into the Economy. An Inflation rate in excess of 4% by Q32007 will cut real Production by about 11%, and raise the Cost of Imports by about 20%. Americans may find themselves feeling Poor by Christmas Season. lgl