Fischisms: The Economic Bandwagon – Potholes Could Make for an Uncomfortable Derailment

Amidst cold evenings and the Administration’s latest declaration that the economy is in a recovery we need to be mindful that we’re not out of the blizzard just yet should we continue down our current path.  In May 2009, we addressed warning signs suggesting that the economy being cheered on by many economists appeared unstable, which we still maintain.  Areas of concern still exist.

•  The ISM Index released today presents a strong front with growth seen in 13 of the 18 sub-sectors that make up the indicator.  The most notable aspect to evaluate is the “Fake out.”  Yes, production increased up to 66.2% versus 59.7% in December, however, review the inventory numbers – 76% of responding manufactures reported either “same” or “increasing” inventories versus 70% in December, 71% in November and 74% in October suggesting that the production increases are not being matched by incoming orders, thus inflating signs of a recovery.  

•  Additionally, the stimulus plan has provided corporations with favorable credit opportunities, most recently $38 billion in tax incentives to accelerate equipment purchases.  True, this will spark the economic engine, however, we shouldn’t rest comfortably that profits will allow for additional purchases 12 months from now.  Also notable, durable goods orders increased 0.3% last month (what many consider a positive sign), however there was a revised drop of 0.4% the month prior, still exhibiting a net decrease over the past two months. 

•  Consecutive budget deficits approximate 10% of the GDP.  Numbers this significant promulgate the possibility of default.  With interest rates approaching record lows, a rate increase can be anticipated both increasing our debt and obligations owed on major purchases.

Let us add up the national debt intangibles.

•  Recently, the administration has expanded troop involvement in Afghanistan to 100,000 troops.  Assets used by the military require replenishment, which will require us to reach further into tax dollar coffers.

•  It would be hard to fathom significant decreases in spending in homeland security, social security, or Medicare – three of the other major components that make up our budget.

These actions contribute to the belief that reducing the $1.4 trillion deficit cannot be foreseen in the near future nor can we assume that there are not some significant market corrections forthcoming.

2 Responses to "Fischisms: The Economic Bandwagon – Potholes Could Make for an Uncomfortable Derailment"

  1. Paul B   February 1, 2010 at 9:48 pm

    I agree that many future headwinds face a long term economic recovery. However, today the biggest question is still where will the jobs come from to restore confidence in families and their spending and to reduce the housing problem, defaults and excess inventory for sale?