2009 Stimulus Check

Continued from The U.S. Economy Part 1

Of particular interest is that though unemployment in manufacturing has been rising as the economy slowed person incomes and spending have been growing at an annualised rate of about a 5 per cent during the past four months. Now Austrian analysis tells us that in the final phase consumption will continue to expand and incomes rise while manufacturing suffers a profit squeeze. We now find that service sector income rose at a rate of 0.7 per cent in February, 7 times the manufacturing rate. A year-on-year figure reveals that total service sector income rose by $US112 billion, or 6.5 per cent, compared with US18.5 billion, or 2 per cent, for manufacturing. This indicates that the spending shift that Austrian analysis predicts has been underway for sometime.

Even so, Austrianism also predicts that the consumption end of the production structure must also feels the effects of recession once manufacturing has been hit. The latest National Purchasing Management’s report on non-manufacturing activity shows its index for this sector dropping in four months from 61 to 47, a 23 per cent fall. Note that this fall occurred despite the fact that incomes were rising. Given these facts, any joy from April’s lift in retail sales will be short lived.

Productivity down, profits down, investment down, manufacturing down, employment down, savings down, labour costs up, spending up, prices up, consumption up, money supply up. These are not the economic ingredients that make for prosperity. They are the fruits of an appallingly loose monetary policy for which America, and the rest of world, are going to have to pay.

Nevertheless, I am not entirely full of gloom. So long as the Bush administration allows the economy to make the necessary, though painful, adjustments recovery should be fairly fast.