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Economic Data Galore in the Next Week

The next week provides ample opportunity to judge the health of the economy,

By Dr. Joe Webb
Published: June 29, 2010

The next week provides ample opportunity to judge the health of the economy, and it will not look very good. The L-shaped recovery, as forecast by yours truly, is unfortunately coming true. While talk of “double-dip” recession is becoming more common, I don't believe it will happen. The economy is stagnant. This more of the same stuff does get frustrating, but it's not a steep decline again. On Thursday, July 1, we get the Institute for Supply Management's manufacturing index, which should be lower than last month, but still be positive. We get the non-manufacturing index on Tuesday, July 6; that should be positive as well, but getting close to neutral. Friday, July 2, we get May printing shipments. That's expected to show a minor decline because there were 1,000 fewer printing production workers than there were in April. The report that will get all of the attention on Friday will be the unemployment report. This will be quite interesting, because the Census Bureau let 240,000 workers go when their assignments were completed. If those workers, some of whom were retired and took on this temporary assignment and may not stay in the workforce, that means the civilian workforce will contract, and potentially make the unemployment rate improve. If they stay in the workforce, that would send the unemployment rate back above 10%. The report could get very messy from a news report perspective and will require some careful examination of the data tables; do not go by the first news reports of the data. We know where to look in the report behind the headline numbers, and will do our best to Tweet the most critical items as soon as possible on Friday. It's at twitter.com/wtterc. A good example of this is the personal income report this past week. The headlines were very enthusiastic, but about ten minutes of review, and digging into some of the historical data records, and we found the report was actually disappointing. Where it was claimed to rise for seven months, the inflation-adjusted data showed otherwise. We also focus on disposable personal income, which is what is left after taxes. When we looked at the data on a year/year basis, May's real disposable personal income was down -1%. Since December '07, the "official" start to the recession, real DPI has increased only of 0.8%. April's real DPI was up +1%, so whatever year/year gain was made in then just disappeared in May. No wonder consumer confidence was down, and why experts were surprised, I don't know. It will be a rocky week ahead, and the only people making money will be the talking heads on the business channels. That may be the only reason they'll be smiling. There are two major themes playing out: 1) in Washington, Fed/WH/Congress are all trying to prop up prices of goods that have already been made and sold a long time ago so that the financing of them does not become zero and make the banking situation even worse. Nothing is being done, however, that will substantially stimulate production of new goods now or in the future; much of the increases in GDP in 2010 look like they are to avoid 2011 taxes, making the outlook for 2011 rather murky. 2) Businesses are focusing on efficiency and not expansion. This is what happens when the future doesn't look cloudy, but actually looks murky. Clouds we can deal with, uncertainty is tough. Everything business owners do seems to be cautious, tentative, and half-hearted. Unless of course, you're selling iPhones and iPads. It's a strange time for small business, but we'll have a comprehensive picture next week. Our recovery indicators will be released next Wednesday, July 7. * * * Though some may consider this post to be a "downer," what's more of a downer are recent statements, especially by Treasury Secretary Geithner, that the global economy can no longer depend on the US for growth or leadership. There is also some general perception that soon China will be the leader of the world economy. All of this is somewhat disturbing. China will eventually be the world's largest economy just because of its rising wealth and the sheer size of its population. Leadership, however comes from excellence and doing things well with high standards of performance. Ronald Reagan inherited an economy similar to the one now, with incredibly high inflation. By working with Fed Chairman Paul Volcker, who was from the opposing party, and with a Congress controlled by the opposing party, the economy improved significantly. But we don't have to go back that far. Despite various problems in his administration, many of them personally inflicted, Bill Clinton's years had a GDP growth rate that averaged +3.8% and an average unemployment rate of 5.2%. His second term had a GDP average of +4.4% and unemployment rate averaging 4.4%. Clinton did not have to deal with the basket case Reagan did, but he did take office during a time of a mild recession, and implemented policies in his first two years that were not economically proactive. He changed course, especially after Congress changed hands in 1994. Both Clinton's and Reagan's second terms had the same +4.4% growth rate. For some reason, today's economic defeatism is now accepted. The 1990s might be last century, but they're not even two decades ago.  Today's macroeconomic and unemployment situation is being accepted as typical, and there are economists, just like in the late 1970s and early 1980s, who are suggesting that this situation, especially high employment, is the "new normal." There is no "new normal." Even though rising emerging markets may overwhelm the US statistically at some point in the future, that does not mean that US innovation and ideas stop playing an important role in increasing the wealth of the world's population. The 1990s were not that long ago, and neither were the 1980s. Yet, somehow, we have forgotten those lessons.

Dr. Joe Webb is one of the graphic arts industry's best-known consultants, forecasters, and commentators. He is the director of WhatTheyThink.com's Economics and Research Center.

What do you think? Please send feedback to Dr. Joe by emailing him at drjoe@whattheythink.com.

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