Mar 14, 2007

Economic Slowdown Sooner Rather Than Later

Martin Crutsinger an AP Economics writer wrote in his Factory Orders Dive Amid Broad Declines that factory orders fell in January by the largest amount in 6 ½ years. This comes after two months of moderate increases. Normally a single month accounting is less than a dependable indicator, but with the housing market is a year long decline, this could be the signal that the downturn in housing is beginning to spread.

Most of the economic news we get is lagging, putting what has already happened into context. Factory Orders are a leading indicator, and with factories normally sitting on 90 days of orders, could indicate additional layoffs this summer/fall.

Also reported on by Mr. Crutsinger was that Productivity came in at 1.6% the last quarter of 2006. This was about half of what was expected and as I reported on in
Economics Can Be Difficult the lower Productivity number can also be an ominous indicator for the overall economy.

Economics Can Be Difficult:

“Productivity is a concept that is often referred to in statements made by Ben Bernanke or the former Fed’s Chief Alan Greenspan, but never seems to add much meaning.”

Some added meaning from Mr. Crutsinger’s article:

“Productivity is the key element needed for rising living standards. It allows businesses to pay workers with the wage gains financed by the increased output. Without productivity gains, businesses often have to resort to boosting the cost of their products to finance wage gains, a process that increases inflation.”