Wednesday, March 1, 2017

Wall Street stupidity picks up, as Main Street falls behind in 2017

Wow, a 300-point gain in the DOW and more record highs on Wall Street? There must have been some great news about the economy today. And here it is- manufacturing plants are apparently cranking out more stuff.
American factories expanded last month at the fastest pace in more than two years.

The Institute for Supply Management, a trade group of purchasing managers, said Wednesday that its manufacturing index came in at 57.7 last month, up from 56 in January and highest since October 2014. Any reading above 50 signals growth.

Factories have now expanded for six straight months. New orders, production and export orders grew faster. Hiring grew, but at a slower pace than it did in January….

Bradley Holcomb, chair of the institute's manufacturing survey committee, said manufacturing's winning streak is being driven by ordinary Americans.

"Ultimately, it's the consumer — consumer demand, consumer confidence," he said. "They are buying things in stores that we manufacture.”
I imagine all of this consumer confidence that Mr. Holcomb is mentioning is reflected in growing incomes and increased spending, right?

Oh wait, that’s not what the data says at all.
Adjusting consumer spending for inflation, which generates the figures used to calculate gross domestic product, purchases fell 0.3 percent after a 0.3 percent increase the previous month. The Commerce Department said it was the largest drop since September 2009, when the measure declined 1 percent.

Forecasts for January consumer spending ranged from increases of 0.2 percent to 0.5 percent, according to the Bloomberg survey. The previous month’s reading was unrevised at a 0.5 percent gain.

The Bloomberg survey median for incomes was a 0.3 percent gain. December’s figure was unrevised at a 0.3 percent advance.

Disposable income, or the money left over after taxes, decreased 0.2 percent after adjusting for inflation, breaking a more than three-year streak of monthly gains. It rose 0.1 percent in the prior month.
Sure, some of these declines may be a blip that resulted from the largest 1-month increase in inflation in nearly 4 years. But remember that real earnings also had a significant drop in January, and the rate of growth is much smaller than last year due to rising inflation. So if prices continue to rise while wages and spending do not, that usually means recession in the real world, which makes February’s economic data reports looming quite large, all of a sudden.

If the real economy isn’t growing, then what is behind today’s massive leap on Wall Street? Because our president* was able to read a bunch of words off a teleprompter without vomiting on himself and embarrassing the country? Apparently so, along with a whole lot of dingbats gambling on future pro-Greedhead policy choices.
In his first address to a joint session of Congress late Tuesday, Trump said he wanted to boost the U.S. economy with a "massive" tax relief, make a $1 trillion effort on infrastructure and overhaul Obamacare.

His comments, though lacking in detail, helped underscore his pro-growth stance that has pushed Wall Street to record highs in a post-election rally….

"The dollar and yields are moving higher as next theme of the market, the 'Fed' overrides the Trump effect."

The probability of a March rate hike jumped to 67.5 percent from roughly 30 percent after the comments from Fed officials, according to Thomson Reuters data. The central bank's policy-setting body meets on March 14-15.

The dollar jumped 0.79 percent to mark its biggest one-day gain since Dec. 15, while gold prices fell.
But we already know that any tax or Obamacare overhaul is months away from taking effect, if they even happen at all, and the exploding budget deficit makes a big-time infrastructure package extremely unlikely. So the "Trump rally" is nothing more than Greedheads believing what they want to believe rather than dealing with the reality our economy is slowing, and that nothing being discussed that will make things better on Main Street (in fact, most Trump/GOP policies will make things even worse).

Then throw in the higher interest rates which makes borrowing more difficult, which likely puts a lid on auto sales and the housing price increases happening in many parts of the country (including Wisconsin). Add in wages failing to keep up with the increase in prices in gasoline and other goods, and you tell me how this sustains itself when we have had nearly 8 years of continual expansion and an aging country near full employment.

Guess it means we need to get on our dancing shoes because the Bubble times are back, baby!

Never forget that a “con” is short for “confidence game,” so get ready for when it’s “Party over.” May it come quickly before the bubbles and damage get even larger.

1 comment:

  1. A nice assessment of our economy here, on "Main Street" in the "fly-over" states. The stock markets do not reflect the real economy. Higher or lower stock prices aren't what drive companies' investment decisions or their hiring plans, which are made based on economic conditions and what is happening in specific markets.

    The Dow index now being at an all-time high reminds us of the phrase Alan Greenspan coined in the mid-90s, "irrational exuberance," or a manic trend in speculation. The Dow is based on 30 big multi-national corporations who make large share of their profits overseas.

    It’s the real economy which determines how many “actual” goods and services are bought, how many people are in work, and how much investment is undertaken here.