Tuesday, May 22, 2012

A Farting Horse Never Tires

An old New England saying is that a farting horse never tires. Could it be true for the economy as well? I was reminded of this saying when reading the article below by First Trust Advisors.

Maybe the fits and starts and hiccups the economy is seeing should be seen as good news and we should change our focus. What do you think?

The Plow Horse Rolls On
Turn on the television, pick up the newspaper, search the Internet and you will find story after story about Greece, JP Morgan, austerity, the labor force, student loans, California, the G-8, or the Facebook IPO.  Just about every bit of the coverage is negative. 

Replace that list with Tunisia, Egypt, China, oil prices, foreclosures, deleveraging, and Ireland; or Dubai, tsunami, earthquake, copper, Baltic Freight Index and Portugal…and you get the picture.  For three years, the news has been relentlessly bearish.

And yet, amid all this, our “plow horse economy” keeps moving forward – through the stumps and rocks and mud.  It’s certainly not I’ll Have Another, who, with one more win, can take the Triple Crown – a measure of strength, courage and greatness.  But it ain’t headed for the glue factory either.

Consumer spending is at a record high (whether measured on a real or nominal basis). Retail sales were up in April for the 21st time in the past 22 months.  In terms of consistency, this rivals the 1998-99 streak of 16 straight monthly gains, a period everyone looks back on as a boom.  Real (inflation-adjusted) retail sales are up 4% from a year ago.  If this is the new normal, let’s have more of it.

Private payrolls are up 26 consecutive months, hours of work are rising, and consumers’ financial obligations are the smallest share of income since 1984.  No wonder sales of autos and light trucks are up almost 10% from a year ago.   

Meanwhile, business investment is soaring.  While overall industrial production is up a robust 5.2% from a year ago, the production of business equipment is up a stellar 12%.  This is why we believe productivity growth, which has slowed down the past couple of years, is destined to get a second wind.

Capacity utilization hit 79.2% in April, equal to the average of the past twenty years.  What this means is that firms have an increasing incentive to build out capacity by investing in plant and equipment.  At the same time, profits and balance sheet cash are at record highs.  In other words, prospects in the business sector look good. 

And, despite all you hear about banks not lending, commercial and industrial loans are up 13.6% in the past year.  The story about banks not lending to companies is getting very stale, the bottom for these loans dates back to late 2010. 

And to top it all off, housing is clearly on the mend.  Starts are up 30% from a year ago.  Every major region of the country shows growth in the past twelve months, for both single-family and multi-family homes.  Residential investment (home building) has been a positive factor for real GDP growth in each of the past four quarters and looks poised to do it again in Q2.

What we have on our hands is a sustainable, self-reinforcing economic recovery.  It could be better.  What’s holding it back is bad policy choices coming out of Washington, DC.  Government spending is robbing the economy of potential and uncertainty about future taxes and regulation is a wet blanket.

Amazingly, the plow horse keeps moving forward.  That’s the real news here - unending pessimism being defeated by the American entrepreneurial spirit. 


Paul said...

I like the second to the last paragraph best. What we have on our hands is a sustainable, self-reinforcing economic recovery. It could be better. What’s holding it back is bad policy choices coming out of Washington, DC. Government spending is robbing the economy of potential and uncertainty about future taxes and regulation is a wet blanket. Obama stands for (Overspending Billions And Manipulating Americans). Vote Romney

Jeff said...

To be honest, does anyone really know what to make of all this? Not to be pessimistic, because I really hope that we are on a sustainable recovery, but something just doesn't feel right. The government is doing all the wrong things, like this guy says, to encourage a lasting recovery, the housing market, at least in this region of the country, is being dominated by investors (people with big money and nowhere better to put it) who are gobbling up homes, townhouses and condos before the average person can buy them to live in. Banks won't loan money to buy a place to live unless you lay down your life savings as a down payment. These investors are laying down cash for great bargains because they can rent them out and make 6% to 10% return of their investment just in rent. You can't even buy a condo unless you have cash because a bank won't even loan on them because the investors own most of the building and the banks don't trust it. None of this can be good for a recovering economy that is based, at least in this region of the country, on real estate developments. The banks are dug in like an Alabama tick when it comes to loaning money and that can't be good for a sustainable recovery either. Regardless of what this guy says, middle America's life style is down because wages, in most cases, are frozen and buying power is less.

Paul said...

Well it’s like he said in the 2nd to the last paragraph Jeff. I have been saying this is the number one reason Obama has to go. This recovery is weak and has no teeth. Between exorbitant government spending and an administration that is not friendly towards business plus the insane regulations put on business you have a weak recovery. You want to give it real teeth or at least better teeth you know what to. Vote Romney.

You can’t fix stupid but you can vote it out.

Sojka's Call said...

Paul - i have been trying to understand why all your words about Obama has to go just do not resonate with me. And, I realized today that no one has provided a shred of data that says how many new regs on business have been implemented under Obama vs how many were already in place. Are you really bitching about stuff that was put in place by Pub administrations in the past along with Dems?

Everyone will agree that businesses are over-regulated in some ways. But, just blaming it all on one administration seems disingenuous to me. Do you have any info from what could be considered impartial sources to back up this incessant clamor about the Obama Administration being the over-regulator of all times?

Paul said...

The internet is full of information on this. I did not read all these sources but there are hundreds of sites. Yesterday, House Republicans ushered in a long-awaited “kumbaya moment” (h/t NYT’s Jonathan Weisman) with the JOBS Act – a package of bipartisan measures that will deliver results for jobs, small business and startups and has broad support from Capitol Hill, the White House, and entrepreneurs. The JOBS Act brings together bipartisan House bills and provisions of President Obama’s Startup America Agenda to provide real solutions that will spur job growth by removing regulation impeding small businesses and startups. http://majorityleader.gov/blog/2012/02/the-leaders-ledger-224.html and another, http://candicemiller.house.gov/2012/03/rep-miller-focusing-on-jobs-to-boost-small-business-and-entrepreneurs.shtml and another, http://dailysparkstribune.com/bookmark/15943794-What-regulations-hurt-business- one more http://articles.businessinsider.com/2011-02-11/strategy/30023519_1_community-board-liquor-license-sla the internet is full of this information. http://www.foxnews.com/on-air/your-world-cavuto/2012/02/17/cke-restaurants-ceo-too-many-regulations-hurt-business Look I am not going to start listing them. There are thousands and thousands of useless regulations! You can find examples easy enough Keith. Here is what Puzder CEO of Hardees and Carl’s Jr. National restaurant chains say about one particular topic. We’ve got -- one of the things I testified about this morning was the menu labeling provisions that were part of the Patient Protection and Affordable Care Act. They require that we put caloric information on our menu boards. Now, we already post the information, nutritional information in our restaurants, but it’s going to cost our company about $1.5 million to replace all those menu boards.

It’ll cost the industry $315.1 million to comply and $44 million a year on an ongoing basis. So it’s a huge expense. All of the research to date shows that putting caloric information on menu boards has no impact on consumers’ eating habits. We already post it in our restaurants. It’s available on the Internet.

It’s just -- it’s a complete waste of money and it’s a complete waste of effort. And it’s just a huge example from the restaurant industry as to over-regulation that’s useless. In fact, we would have more money to invest in job-creating activities instead of regulation compliance activities. We have got – we’ve got the Polygraph Protection Act, the Genetic Information Nondisclosure Act. We’ve got an 11-page single-spaced list of regulations that you have to comply with to operate and open a simple quick-service restaurant chain, 57 categories of regulations, 11 pages long. I especially like this one. And I don’t care that it is Glen Beck. It does not mean it is not factual!!! You can watch it; it’s only 60 seconds long. http://www.youtube.com/watch?v=l2sb1H68fAg

Sojka's Call said...

I just went through 5 links and none of them with the exception of the Patient Care labeling requirement talk about anything specific that Obama put through. I go back to my statement that people are complaining about the all the stuff put in for ages and now blame Obama since he is Prez. Obama's administration did not create 99% of the regs that businesses are complaining about.

Paul said...

Here is a very interesting report from The House. http://oversight.house.gov/wp-content/uploads/2012/01/9.13.11_Broken_Government_Report1.pdf

Obama has actually written fewer regulations than GWB so far. Obama’s White House approved 613 federal rules during the first 33 months of his term. There were 643 cleared by President George W. Bush’s administration according to an Office of Management and Budget statistical database.
The number of significant federal rules, defined as those costing more than $100 million, has gone up under Obama, with 129 approved so far, compared with 90 for Bush, 115 for President Bill Clinton and 127 for the first President Bush. I think the argument is to why keep writing so many. Why not repeal some. I know as times change some new regulations will be needed. But lets keep a leash on this during these economically stressed times. And lets not have another 4 years of bigger government and more regulations under Obama.

Sojka's Call said...

Paul: OK - that is some decent data. And, it shows really no significant difference from any preceding president. I just don't think this is the big issue many in the media are playing it out to be. It is a campaign issue to get your goat and vote.