January 02, 2004
THE PSYCHIC DISCONNECT (via John Resnick):
Factory activity makes surprise surge in Dec. (Reuters, 1/02/04)
U.S. factory activity expanded at the fastest pace in 20 years in December, the Institute for Supply Management said Friday, adding to evidence that a manufacturing recovery is under way and lifting the economy.The institute said its barometer of manufacturing activity jumped to 66.2 in December from 62.8 in November. The reading, which marks the sixth consecutive month of expansion in manufacturing, was significantly higher than the 61 forecast by analysts. [...]
ISM's jobs component was 55.5, up from 51.0 in November and was above 50 for the second straight month after being lower 37 straight months.
"Much of the momentum is in new orders," said Norbert Ore, chairman of the institute's manufacturing business survey committee. "The strength in December's data provides significant encouragement for prospects in the first quarter of 2004."
Ore noted that a component index tracking new orders to factories reached its highest level since 1950, rising to 77.6 in December from 73.7 in November.
The American economy continues to boom ahead while Europe's stagnates or contracts, yet the Euro rises against the dollar--the EU is paying an awfully high price in keeping interests rates artificially high just so they can seem significant. Posted by Orrin Judd at January 2, 2004 11:18 AM
It may be worse than that. Pride you can swallow, when push comes to shove. But I am afraid that they are caught between the proverial rock and a hard place. Their economies are not as efficient as ours, which keeps the threat of inflation vivid in the mind of the ECB. This coupled with a strong preference for leisure over toil, and no wonder demand can easily outstrip supply anytime an economy dares grow faster than 2.5%.
However, oj, let's not fool ourselves. The dollar's fall -- the final unwind of the 90's bubble -- is good for the world economy as a first step in correcting one of its excesses: a large current account deficit, which continued to grow even when the government was reaping a huge tax windfall(think of cap gains taxes alone) and spending relatively little defending ourselves and the world. (Thus, no mystery why it has not stopped growing in the '00's.)
Posted by: MG at January 2, 2004 11:52 AMOn the flip side it makes it pretty clear that the Fed interest rates need to start drifting up back to normal levels.
Posted by: Gideon at January 2, 2004 12:59 PMI think you may be getting the budget and current account deficits mixed-up here. The budget deficit is "ok" by historical standards. This is the one that is most hyped, as it is reported in $-terms, rarely putting it in GDP context. However, the current account deficit, which is almost always analyzed in GDP context is definitely high, at levels in excess of 5%. I suppose (and have not seen any economist say this, but it would be interesting to study) that to the extend that we finance ourselves with the world's reserve currency, current account deficits should also be put in context of the GDP's of all the countries that help finance it. Asia's growth in the last couple of decades may have made an important difference in this "adjused denominator", and it may hint at why dollar moves (up or down) have not been disorderly.
Posted by: MG at January 2, 2004 03:23 PMGideon:
Why? There is no inflation. It seems more likely that they are still too high.
MG:
With the economy running at 8% growth they'll be revising that deficit, which is hardly excessive by the standard of previous wars, downward so fast your head'll spin.
Posted by: oj at January 2, 2004 05:59 PM