Economic News - Read It and Weep Thursday May 15, 2:52 PM EDT By Tim Ahmann WASHINGTON (Reuters) - U.S. wholesale prices took a record plunge last month and the nation's manufacturing sector slumped, according to reports released on Thursday that showed an economy facing an uphill climb to full health. The producer price index, which measures prices paid at the factory, farm and refinery gate, plummeted 1.9 percent in April, the biggest drop on records dating to 1947, the Labor Department said. Much of decline was due to an 8.6 percent fall in energy prices, reflecting a big drop in oil prices from late-February highs as fears over a war-related supply disruption eased. However, prices for cars, SUVs and other light trucks, and cigarettes also fell, dragging the so-called core PPI, which excludes volatile food and energy prices, down a sharp 0.9 percent -- its biggest plunge since August 1993. In a separate report, the Federal Reserve said output at the U.S. manufacturing plants, mines and utilities slid 0.5 percent last month, its second consecutive drop. U.S. industry operated at only 74.4 percent of capacity, the lowest level in 20 years. A third report showed manufacturing activity in the mid-Atlantic region contracted in May, suggesting the nation's factories are still ailing. "The manufacturing sector is still in the dumps and is having problems getting out of the doldrums," said Sung Won Sohn, chief economist at Wells Fargo Bank in Minneapolis. "With weak consumer and business spending, manufacturers are not about to crank up production." Stock markets largely shrugged off the downbeat news and were clinging to slim gains in early afternoon trade. Prices for most Treasury securities rose, pushing yields lower. HOPE AMID GLOOM While wholesale prices fell more than economists had expected, analysts cautioned against concluding deflation, a persistent drop in consumer prices, was about to set in. The Labor Department reports April consumer prices on Friday. "The trend is still there to softer prices. The economy is shaking off the war-related paralysis from March and April, but the question is will growth be sustained or will it be just a return to the slow pre-war growth?," said Kevin Logan, senior economist at Dresdner Kleinwort Wasserstein in New York. Many economists saw at least glimmers of hope for a faster recovery in data released on Thursday. Factories in New York state ramped up activity in May and sales at retailers, manufacturers and wholesalers climbed in March at their fastest pace in nearly a year. In addition, first-time filings for jobless aid fell by 13,000 last week to a seasonally adjusted 417,000, their third consecutive weekly drop, the Labor Department said. However, while claims declined, they remained above the 400,000 level for the 13th week in a row. Economists say claims above 400,000 indicate a stagnant labor market. In another sign of weakness, the number of jobless workers who remained on the benefit rolls in the May 3 week, the latest week for which data are available, rose a sharp 120,000 to 3.77 million. That marked its highest level since mid-November 2001, when the U.S. economy was reeling from the Sept. 11 attacks. "The economy is still moving ahead but not very fast and it does not seem to have accelerated much from the 1 and half percent rate that we've seen in the past six months," said Douglas Lee, president of Economics from Washington. BANKRUPTCIES MOUNT The recent pace of growth has fallen short of what is needed to create jobs, pushing the unemployment rate to a four-month high of 6 percent in April. Mounting job losses have led to a rise in bankruptcies. The Administrative Office of the U.S. Courts said on Thursday a surge in personal bankruptcies pushed overall bankruptcy filings to a new high in the 12 months ending in March. Nevertheless, analysts say historically low interest rates are helping consumers keep up with debt payments. Low rates have also played a big role in propping up the housing market and the National Association of Home Builders said on Thursday its housing market index rose, a sign builders were hopeful already-strong sales will stay robust. With the economy sluggish, producers have had a tough time trying to raise prices. Car prices at the producer level fell 2.6 percent last month, their biggest drop since October 2001, while prices for light trucks fell 4.6 percent, the largest drop since February 1982. Vehicle prices have fluctuated sharply in recent months, reflecting on-again, off-again sales incentives. Record drops for the cost of gasoline and home heating oil partly accounted for the sharp drop in energy costs. Gasoline prices fell 22.3 percent, heating oil was down 29.3 percent. ©2003 Reuters Limited.
BTW, is this the right forum for this news article? Or do I need say what a Poo Poo Head Bush is to keep it here?
here's a thought that can 't be reasoned out by trickle down economics. They say there's a drop in consumer spending so the manufacturers aren't increasing output. Who are the consumers in this country? Middle and Lower classes for the most part. Who works at those factories? Middle and lower classes for the most part. If consumers have no reason to spend, then manufacturers have no reason to produce or keep a full compliment of workers. If workers have no jobs, then they can't spend. Government spending increases jobs, employed workers start spending money, businesses ramp up and hire workers to meet their increased needs. In a consumer driven economy, put money into the hands of the consumer and the economy will fix itself. Call me idealisitic and naive, but I'm not the one supporting an economic plan that has never been definitively proven to work, but has been proven to wreck economies in other countries.(think south america)
I'm not surprised. Our economy should tank just as hard and strong as the boom of the 90's, except in the opposite direction. Heresy, the key is investment, not spending. It is investment that creates both jobs and cheaper products which increases the standard of living. Government jobs don't create any products that raise the standard of living. They are mainly bureaucratic, or, if they are creating products, they are ridiculously inefficient. The problem the people don't realize is that there was a massive inrease in the money supply through the 90's. Now tons of people and business are saddled with debt. This debt will be reduced and paid off before new investments are made. As the availablity of credit dries up (we can't reduce interest rates anymoer) prices will fall.
No Worries, your post makes it appear that Reuters and Tim Ahmann titled the article "Read it and Weep". Of course, upon review, that is false. That confused me, because the article talks about mixed results from an economy attempting to recover from a recession. Here is the actual article name from Reuters.com- Producer Prices, Factory Output Weak Thu May 15, 2003 04:57 PM ET By Tim Ahmann WASHINGTON (Reuters) - U.S. wholesale prices took a record plunge last month and the nation's manufacturing sector slumped, according to reports released on Thursday that showed an economy facing an uphill climb to full health.
Or do I need say what a Poo Poo Head Bush is to keep it here? I don't know. You might try to label it as a general topic in current economics. I think Macbeth got a way with one by calling it "favorite topics in history". I was tempted to post that one of my favorite topics is "the history of US imperialism since the Spanish American War, but I was afraid that it would be moved and Macbeth would get mad at me.. One thing I'm happy about is that I don't have to be disturbed by having to see that others are discussing their favorite cartoons when we are involved in a war in Iraq and nuclear proliferation issues. I know I don't have to click on the cartoon threads, but it just disturbs me nevertheless that they are having that silly thread when I just want to be seriously involved with world issues. Another problem that I hope this new forum can take care of. I click on a thread that I think is discussing Bush's misconduct in office or another worthy topic and I find that people have turned it into a nonsense thread or even making jokes.. It just ruins my whole day.
Economic News - Read It and Weep Imagine an egg. Imagine your face. Image the convergence of the two.
Here is an example of how trickle down economics and the dividend tax reduction doesn't and won't work. Microsoft has over 30 billion dollars in the bank. It is not being invested except maybe in bonds or something. Now if the dividend tax is removed. Gates and company will dish out that money to themselves in dividends. Gates, Balmer, and Allen own almost a half of Microsoft so these will eventually get about 15 billion dollars tax free. Do you think these guys will invest it when they could have just as easily invested as Microsoft. No. They will just get richer without getting taxed. When Bill gets this extra money, he will just stick in the bank which does not create new jobs. So here is an example of why trickle up economics does work. A poor or jobless family that can't afford a car or a nice place to live. You give them extended unemployement benefits or education credits. What do they do with that money? They spend it. Who do they spend it with? Businesses. Who own these businesses? Rich people like Bill Gates. This also goes for public sector. If you give the public more money, they will spend and who do they spend it with? Business. And again who owns these businesses. Rich people like Bill Gates. So who wins in this case? Everyone because poor people get help and rich people make money from the poor people. Also by doing this cause demand for goods and services to go up which forces business owners to hire people to meet the demand for good and services. I know this is a very simplistic example but this is the only way I can describe why Bush's policy doesn't work without writing a thesis on it.
I love the fact that the company that Bush shows as an example makes most of its money from taxpayers... http://slate.msn.com/id/2082986/ The Fabulist Bush's absurd obsession with small business. By Michael Kinsley Posted Thursday, May 15, 2003, at 1:21 PM PT President Bush, of course, is not a junior reporter for the New York Times. So maybe it doesn't matter if he makes up stories and puts them in the newspaper. After Ronald Reagan, it's almost a presidential tradition. Bush was in New Mexico on Monday with a new answer to critics who complain that his tax cut proposal favors the rich. In two words: small business. "Most new jobs in America are created by small businesses." Therefore tax cuts "must focus on the entrepreneur." And thence to more familiar bromides: It's not "the government's money," it's "your money"; "our greatest strength" is "our individual citizens"; criticism is "just typical Washington, D.C., political rhetoric, is what it is." The myth of small business is one of the more ridiculous bipartisan superstitions that influence government policy. Small businesses, by their nature, come and go. They create more jobs than big businesses and wipe out more jobs, too. Any small-business owner burdened by high taxes is, by definition, more affluent than the typical big-business owner, who is an ordinary working American with an interest in a retirement fund. Small businesses are swell. But special favors for small business make no sense in terms of either fairness or prosperity. Bush gave his speech Monday at a company in Albuquerque called MCT Industries. "We're standing in the midst of what we call the American dream," he said. MCT is privately owned by the family of Ted Martinez, who founded it on a shoestring in 1973 and is now a wealthy VIP who hangs around with politicians. "The Martinez family is living that dream," Bush said. Before we even get to the fantasy element, there is a logical problem here, isn't there? A successful "small" business makes an odd poster child for the proposition that the government is getting in the way of small business success. How did the Martinez family manage to achieve the American dream during a period when high taxes were supposedly thwarting that dream? If MCT Industries is so successful under current arrangements, why does it need a tax cut? . . . So you get rich with a dozen different types of tax-funded help, you become a Republican, and you live happily ever after complaining about how much you pay in taxes. Maybe President Bush was right after all, that is the American dream.
Here's a problem with the Trickle down theory. Supposedly it will put money in the hands of rich investors who will now realize they have more money and invest more. That's ridiculous. If I'm rich and make ten million a year before taxes, and end up making only five million because of taxes, I still have plenty to invest. If I'm not investing while making five million dollars year then why would I invest if a tax cut helped me to make six or seven million a year. Rich people shouldn't need an incentive to invest. They are rich and have plenty of money to invest if that's what they want to do. Then of course or national debt will grow and all that. If Bush really wanted to cut taxes he would spend the money he was going to use on the tax cut for paying off the debt. Currently the the fourth largest expenditure of our debt 14% goes toward paying just the intrest on our debt. If we took care of our debt, that would be a quick 14% cut out of our budget. No programs would have to be cut, and a wise(not damaging) tax cut would be warranted.
I disagree. Its demand for goods that creates jobs, not some CEO that just gets a wild hair up his butt that decides to expand his factory. CEO's will only react with the economy. Lets put it this way, if they don't react, opportunity will present itself for someone more hungrier to set-up (which we don't see enough of these days.... with just cause, different story.) Anyways, there is nothing going on in Bush's economic policy that will create a single job. This is my first Bush bashing in awhile, but the guy has his capabilities. He just isn't that skillful. The whole landscape of business needs changing. Its like the generation of stagnation and greed is running corporate america. No expanding, just acquire new businesses, then eliminate jobs.
That is interesting. I cut and pasted my story title from Reuters.com as well. I wonder why they would rename the same story from the same author?
After nearly puking up my morning coffee after reading the economic amateurism put forth by Heresy and rockbox, I furiously went searching for a few of my classic posts on tax policy and the economy in general. Unwilling to spend the time to find them (Clutch, Jeff, etc -- I will donate $50 to CC.Net if you enable search for me), I found this excellent piece by one of my favorite economists, Larry Kudlow. No economist captures my thoughts in the exact manner as does Kudlow. He is a true economic leader whom I respect greatly. ************************************************************* A Wall Street/Washington Disconnect Inside-the-Beltway reporters are economic nincompoops. For weeks the media inside the Beltway have been chattering relentlessly about the sinking dollar and the threat of deflation. Their sky-is-falling mantra features the liberal message that President Bush's proposed tax-cut plan will fuel the budget deficit, jack up interest rates, and wreck the economy. And yet, if the Bush economic-recovery plan of easier money and lower tax rates is so catastrophic — about to rip through the economy like an Oklahoma tornado — why are both the stock and bond markets enjoying significant rallies? Somebody has to be wrong here. No doubt, there's a big disconnect between Wall Street and Washington — which often happens. But this chasm is unusually wide. Why? The vast majority of political reporters in Washington do not believe in the markets. They are unwilling to listen to the forward-looking message from Wall Street and the investor class that better economic times are coming. This stubbornness reflects their belief that stock- and bond-market movements are either randomly capricious events or — even worse — they are rigged by a bunch of greedy rich people. This is too bad. The efficient and well-informed markets are voting emphatically for the pro-growth policy mix of accommodative money from the Federal Reserve, to fight lingering deflation, and lower tax rates from lawmakers — sizeable enough to create economic incentives for much-needed capital formation and work effort. Since the eve of the Iraq war, the nation's stock markets have increased by nearly 20 percent. The rally is broad and deep. It encompasses virtually all sectors of business, but especially the sensitive economic areas of technology, telecom, consumer spending, basic materials, industrials, and financials. The message is unmistakable: Conditions may be soft now, but in a few months they will improve markedly. In bondland, long-term interest rates continue to decline. If a lower dollar and rising budget deficits are so bad, why are Treasury rates at 45 year lows? In stockland, if lower tax rates on investment capital and worker incomes are so ineffective, why are big and small-cap growth stocks leading the charge into the next bull market? Most political reporters and commentators in Washington can't answer these questions. In short, they're economic nincompoops. They buy into the liberal line that tax cuts should temporarily put money into the pockets of lower-income folks — those who don't even pay taxes in the first place. They don't understand (and if they do they won't tell you) that liberal politicians want to keep more money in Washington so they can spend it — especially on Democratic interest-group causes. Of course, if higher government spending were the answer, the economy would be roaring. But federal spending is running at roughly 11 percent today — about ten times the inflation rate — and there are no roars in earshot. What the liberal media refuses to accept is the supply-side view that changes in tax rates cause changes in economic behavior. The respected National Bureau of Economic Research has documented all this. So has history. Did the liberal media miss the economic boom that followed President Reagan's tax cuts? Or the one that occurred after President Clinton signed a Republican bill in 1997 reducing the capital-gains tax and expanding tax-free savings accounts? They can even go back to the 1960s when the JFK tax cuts sparked a strong economy. But the Beltway media won't study the evidence. They'd rather play politics. Not one reporter in a thousand understands that the current rising price of gold and falling dollar signal the end of deflation. The Fed's recent warning of an "unwelcome substantial fall in inflation" actually came three years too late. Nevertheless, Alan Greenspan & Co. must continue feeding the economy with new cash without raising interest rates for a good long while. An intermeeting rate cut, following poor results in the latest producer price and industrial production reports, should be made right now. As for the dollar, Treasury Secretary John Snow is exactly right to note that dollar exchange rates are determined by global market forces. Unfortunately, he inherited a credibility gap from his predecessor Paul O'Neill. For now, an easier greenback will help exporting businesses, but it will also aid domestic companies that have been crushed by deflationary drops in their pricing power and profits. Someone in the White House should pull all this together and rebut the liberal attack, which is being replayed by the witless political media. Falling interest rates and rising share prices are daily votes in favor of an easier dollar and lower tax rates. The minute President Bush's investment-oriented tax-cut plan goes into action, King Dollar will return to its throne and another long supply-side recovery will begin. A good many reporters will be in hiding at that point, and they'll be watching the economic recovery with amazement.
