Moderate, less robust, recovered from weather-related weakness, mixed, some weakening, "shortage of skilled workers," and "wage increases have remained generally subdued."
These are some of the words and phrases culled from the latest edition of the Beige Book, the Federal Reserve Board's periodic report on economic conditions throughout the country, and released today.
Separately, the Commerce Department said the April international trade deficit increased 6.9 percent in April from the month before. Exports fell and imports rose, increasing the gap to $47.2 billion. This may not seem like much, for a total economy valued at some $16 trillion, but as overall performance slows and American firms sell less stuff overseas as consumers buy more stuff from foreign companies, it raises a question as to how long (and by whom) the spending spree can continue.
Several sources have reported strong activity in new home construction despite the Beige Book survey that new home sales and construction activity was mixed. It's good to keep in mind, however, that residential construction typically aims at the higher end of the market. Meanwhile, sales of existing homes "were being held back due to low or dwindling inventories," the Fed said. And as supply dwindles, prices go up.
Meanwhile, a slowdown in inflation may lead to trouble in Europe. How is it possible that lower prices are bad? Certainly such a situation is good for consumers -- those with money -- but it's not so good for vendors, who suffer lower profits and as competition drives prices even lower, entrepreneurs resort to layoffs and even shutdowns.
As reported here in early March, "even low inflation -- let's call it lowflation -- can be problematic," according to a study by the International Monetary Fund. Thus, keeping interest rates low and making more cash available can help an economy.
The problem, then, in America as well as in Europe, is this, ER commented three months ago: "Firms borrow at low interest rates but use the funds to pay down older, higher rate debt and don't use the money for investment in new capacity. Result: Production is stagnant because consumer demand is holding steady. There's no reason to boost supply because demand isn't there."
Even though the effective interest rate is zero.
As it is, banks pay nearly nothing on savings accounts, and buy government bonds that pay them interest. Executives and shareholders are happy, but the general public might as well stash their cash in a mattress.
Watch, then, for federal regulators to push financial institutions to increase lending, and for other governmental agencies to encourage more investment. In effect, this is what the Fed has been doing for a couple of years, and clearly it hasn't been enough. The solution isn't hard to figure out, either. Since money flow is the fuel that powers economic growth, the answer is more spending. And if consumers can't and corporations won't, the government must.
What happens otherwise? Look for another recession.
Simplistic? Yes. But economic recession is defined as two consecutive quarters of decline in Gross Domestic Product (GDP), the total value of goods and services produced in a country. The U.S. economy started a downward slide last fall, and during the first quarter of this year posted a negative growth figure -- an estimated -1.0 percent.
If the second quarter, which ends June 30, posts another negative rate, that will officially mark another recession. Stay tuned.
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