Is U.S. Heading Toward Recession?

m.knox

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From my view, I can honestly say I don't know. There has indeed been a softening, and the ISM manufacturing index has been decreasing (and yes CDW, it is now below 50), but for some customers, we cannot get enough product out of the door.

If stocks keep diving, individuals may become more hesitant to spend. That would not be good.

But alas, the article.

http://www.realclearmarkets.com/articles/2016/01/16/is_us_heading_toward_recession_101956.html

So, yes, as we start 2016, a recession is a real possibility. Add to that the likelihood of three or four Fed rate hikes this year, and the economy's brakes will be on.

What do we do? The standard Keynesian answer is to boost consumer spending by redistributing money from the 1% to the middle class and by more government "stimulus." After all, consumers are two-thirds of all spending. So they need to be stimulated for the economy to grow, right?

Wrong. This would be a huge mistake - as it was in 2010. What really ails the economy right now is a lack of business investment. That's real stimulus. Investment creates consumption by making products to consume, and the income with which to buy them.

Unfortunately, orders for nondefense capital goods, a proxy for business investment, have fallen 11 straight months, averaging a 3.4% year-over-year decline every month in 2015 - a sign of extraordinary weakness.

How can this be after years of record-low interest rates and stock market gains?

Obamanomics has created the most anti-business environment in postwar history. Businesses face a record onslaught of regulation, a world-high 35% tax rate, higher minimum wages, hostile legislators who routinely demonize profits and success, an erratic Fed and growing uncertainty about the U.S.' political future. Why invest?
 

thecoolestfish

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Nov 1, 2005
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From my view, I can honestly say I don't know. There has indeed been a softening, and the ISM manufacturing index has been decreasing (and yes CDW, it is now below 50), but for some customers, we cannot get enough product out of the door.

If stocks keep diving, individuals may become more hesitant to spend. That would not be good.

But alas, the article.

http://www.realclearmarkets.com/articles/2016/01/16/is_us_heading_toward_recession_101956.html

So, yes, as we start 2016, a recession is a real possibility. Add to that the likelihood of three or four Fed rate hikes this year, and the economy's brakes will be on.

What do we do? The standard Keynesian answer is to boost consumer spending by redistributing money from the 1% to the middle class and by more government "stimulus." After all, consumers are two-thirds of all spending. So they need to be stimulated for the economy to grow, right?

Wrong. This would be a huge mistake - as it was in 2010. What really ails the economy right now is a lack of business investment. That's real stimulus. Investment creates consumption by making products to consume, and the income with which to buy them.

Unfortunately, orders for nondefense capital goods, a proxy for business investment, have fallen 11 straight months, averaging a 3.4% year-over-year decline every month in 2015 - a sign of extraordinary weakness.

How can this be after years of record-low interest rates and stock market gains?

Obamanomics has created the most anti-business environment in postwar history. Businesses face a record onslaught of regulation, a world-high 35% tax rate, higher minimum wages, hostile legislators who routinely demonize profits and success, an erratic Fed and growing uncertainty about the U.S.' political future. Why invest?

My god that author is a partisan idiot. "Investment creates consumption?" The idiot author probably thinks the carriage pulls the horse too. {rolling eyeballs}

Yeah, create it and they will come! (even though they have no means)

This statement that "Investment creates consumption" is right there with Bernie not understanding that secured debt is cheaper than unsecured debt, or you thinking food stamps are a feature of trickle down. Illustrates an embarrassingly complete lack of knowledge or understanding. Truly jaw dropping.

You reading articles like this -- and thinking they're worthy enough to be re-posted -- probably explains a lot (i.e. where you got the idea that food stamps are trickle down).
 

m.knox

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My god that author is a partisan idiot. "Investment creates consumption?" The idiot author probably thinks the carriage pulls the horse too. {rolling eyeballs}

Yeah, create it and they will come! (even though they have no means)

This statement that "Investment creates consumption" is right there with Bernie not understanding that secured debt is cheaper than unsecured debt, or you thinking food stamps are a feature of trickle down. Illustrates an embarrassingly complete lack of knowledge or understanding. Truly jaw dropping.

You reading articles like this -- and thinking they're worthy enough to be re-posted -- probably explains a lot (i.e. where you got the idea that food stamps are trickle down).

Investment creates jobs Fish. Investment typically consumes good and services.

It gets back to a point a made a while ago that you didn't acknowledge. If YOU can flip more houses, it is good for the economy. When YOU buy a beat up property, you consume goods and services to fix it up. No?
 

katchthis

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Sep 3, 2004
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One positive about a recession this year, it would make the election of Hillary much more unlikely.
 

thecoolestfish

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Investment creates jobs Fish. Investment typically consumes good and services.

It gets back to a point a made a while ago that you didn't acknowledge. If YOU can flip more houses, it is good for the economy. When YOU buy a beat up property, you consume goods and services to fix it up. No?

I'm only going to buy a house to fix up if there is a market capable of paying a profitable price after it's fixed up.

In a recession, from a macro level, that is not the case. I can't just fix up a house and expect it to be bought (at a profitable price), simply because I invested in the house.

I'm actually glad you brought this up, because house flipping perfectly illustrates how incredibly wrong the author has it.

When people have money (i.e. we're not in a recession), house flipping goes crazy. That is because house prices are stable or going up. In other words, there is DEMAND. Demand creates the investment (creation of flippers). Investment can't create demand.
 

m.knox

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I'm only going to buy a house to fix up if there is a market capable of paying a profitable price after it's fixed up.

In a recession, from a macro level, that is not the case. I can't just fix up a house and expect it to be bought (at a profitable price), simply because I invested in the house.

I'm actually glad you brought this up, because house flipping perfectly illustrates how incredibly wrong the author has it.

When people have money (i.e. we're not in a recession), house flipping goes crazy. That is because house prices are stable or going up. In other words, there is DEMAND. Demand creates the investment (creation of flippers). Investment can't create demand.

Everyone has their own reasons for investing in whatever it is they are going to invest in. We are not discussing the decision to invest.

For example, our business is opening a second plant. That investment created about $35 MM in consumption - workers, concrete, steel, machines.........

The author is right. Business investment often creates consumption just as I noted in your example and my example. Stop being so stubborn. Don't be like NJ and think things just appear....
 

thecoolestfish

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Everyone has their own reasons for investing in whatever it is they are going to invest in. We are not discussing the decision to invest.

For example, our business is opening a second plant. That investment created about $35 MM in consumption - workers, concrete, steel, machines.........

The author is right. Business investment often creates consumption just as I noted in your example and my example. Stop being so stubborn. Don't be like NJ and think things just appear....

You're the one being stubborn (or naive). Your business opened a second plant because there is a market (demand) capable of buying the products (at a good profit) that will be created there. If the demand wasn't there (i.e. in the case of a recession), they wouldn't build the plant. Or if they did, it would be foolish.

When businesses see a demand, they'll invest (leverage themselves if necessary) to create the products to meet that demand.

In other words, demand causes supply (investment in creating supply). Supply (investment in creating supply) doesn't cause demand -- like the author naively said.

If you take your partisan glasses off, this is really basic, simple, logical stuff. But of course, like when even bdgan (someone on your own team) explained that you were completely wrong about food stamps being an instrument of trickle down economics, you won't admit that you're wrong.
 
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rumble_lion

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Investment creates jobs Fish. Investment typically consumes good and services.

It gets back to a point a made a while ago that you didn't acknowledge. If YOU can flip more houses, it is good for the economy. When YOU buy a beat up property, you consume goods and services to fix it up. No?

Investment creates jobs Fish. Investment typically consumes good and services.

Why would a company increase investments when the demand for their products is dropping? That doesn't make any sense.

Investments increase when demand for the companies goods and services increase.

Right now the level of spending in the economy is not enough to buy all the goods and services that can be produced.
 

m.knox

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You're the one being stubborn (or naive). Your business opened a second plant because there is a market (demand) capable of buying the products (at a good profit) that will be created there. If the demand wasn't there (i.e. in the case of a recession), they wouldn't build the plant. Or if they did, it would be foolish.

When businesses see a demand, they'll invest (leverage themselves if necessary) to create the products to meet that demand.

In other words, demand causes supply (investment in creating supply). Supply (investment in creating supply) doesn't cause demand -- like the author naively said.

If you take your partisan glasses off, this is really basic, simple, logical stuff. But of course, like when even bdgan (someone on your own team) explained that you were completely wrong about food stamps being an instrument of trickle down economics, you won't admit that you're wrong.

You have created an entire straw man argument. You do realize that don't you? The point was that when business's invest, goods and services are consumed (as demonstrated by two examples). You argue back that business's won't invest unless there is demand. Neither the author nor myself was advancing that point, and it doesn't refute the fact that when business's invest, goods and services are consumed.

Now if I were to accept your straw man argument, I would add that some will take risk regardless of the business environment at the time.

Check mate. You lose. I win.
 

m.knox

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Investment creates jobs Fish. Investment typically consumes good and services.

Why would a company increase investments when the demand for their products is dropping? That doesn't make any sense.

Investments increase when demand for the companies goods and services increase.

Right now the level of spending in the economy is not enough to buy all the goods and services that can be produced.

Who cares about "all the goods"? Capitalism is about providing the goods and services individuals want and need, and will voluntarily pay for.

So are you suggesting that my company should have never invested because the plant will likely come up in a downturn? Are you suggesting that Fish stop all investment activity in FEAR of a recession?
 

rumble_lion

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Aug 7, 2011
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I'm only going to buy a house to fix up if there is a market capable of paying a profitable price after it's fixed up.

In a recession, from a macro level, that is not the case. I can't just fix up a house and expect it to be bought (at a profitable price), simply because I invested in the house.

I'm actually glad you brought this up, because house flipping perfectly illustrates how incredibly wrong the author has it.

When people have money (i.e. we're not in a recession), house flipping goes crazy. That is because house prices are stable or going up. In other words, there is DEMAND. Demand creates the investment (creation of flippers). Investment can't create demand.


These guys want businesses to invest in more plant and equipment when their sales go down. I have never worked at a company in my entire life that did this. Every company I have worked for cuts costs when sales drop.
 

rumble_lion

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Who cares about "all the goods"? Capitalism is about providing the goods and services individuals want and need, and will voluntarily pay for.

So are you suggesting that my company should have never invested because the plant will likely come up in a downturn? Are you suggesting that Fish stop all investment activity in FEAR of a recession?


Who cares about "all the goods"? Capitalism is about providing the goods and services individuals want and need, and will voluntarily pay for.

Industrial Production, December 2015: “December was not a good month for the industrial economy as industrial production fell a sharper-than-expected 0.4 percent” [Econoday]. “Capacity utilization fell 4 tenths from a downwardly revised November to 76.5 percent.

Why is capacity utilization at 76.5 percent? Why did industrial production fall .4 percent?
 

crazyivan77

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These guys want businesses to invest in more plant and equipment when their sales go down. I have never worked at a company in my entire life that did this. Every company I have worked for cuts costs when sales drop.

You've never worked for the government apparently.
 

m.knox

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Aug 20, 2003
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Who cares about "all the goods"? Capitalism is about providing the goods and services individuals want and need, and will voluntarily pay for.

Industrial Production, December 2015: “December was not a good month for the industrial economy as industrial production fell a sharper-than-expected 0.4 percent” [Econoday]. “Capacity utilization fell 4 tenths from a downwardly revised November to 76.5 percent.

Why is capacity utilization at 76.5 percent? Why did industrial production fall .4 percent?

Maybe you need to look at the capacity utilization of the polymerization of polypropylene and polyetherimide.....

But to answer your question of why did industrial production fall 0.4%: it's the stupid government you so dearly love and evidently require.
 

m.knox

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These guys want businesses to invest in more plant and equipment when their sales go down. I have never worked at a company in my entire life that did this. Every company I have worked for cuts costs when sales drop.

So are you suggesting that my company should have never invested because the plant will likely come up in a downturn? Are you suggesting that Fish stop all investment activity in FEAR of a recession?

So are you suggesting that our investment is "bad"? I mean you NEVER worked for a company IN YOUR ENTIRE life that invested in plant and equipment when sales dropped????
 

crazyivan77

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Dec 7, 2007
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These guys want businesses to invest in more plant and equipment when their sales go down. I have never worked at a company in my entire life that did this. Every company I have worked for cuts costs when sales drop.

If Apple listened to you in the 1990s, we would never have the iPhone.
 
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thecoolestfish

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Who cares about "all the goods"? Capitalism is about providing the goods and services individuals want and need, and will voluntarily pay for.

Industrial Production, December 2015: “December was not a good month for the industrial economy as industrial production fell a sharper-than-expected 0.4 percent” [Econoday]. “Capacity utilization fell 4 tenths from a downwardly revised November to 76.5 percent.

Why is capacity utilization at 76.5 percent? Why did industrial production fall .4 percent?

I'm finished on this thread. It's like talking to a brick wall (except the brick wall is better at logic).
 
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indynittany

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As usual, you guys are talking past each other. The issue, IMO, is about what's real and what's not. Without honest price discovery, the whole thing is nothing but a crap shoot.

The housing debacle is a perfect example. Aside from the moral hazards created by loose lending policies, Fannie and Freddie, etc., the Greenspan/Bernanke Keynesian tactic of artificially suppressing the cost of capital lowered the monthly payments on mortgages to the point that many more people could carry the debt and/or carry more debt. This boost in demand spurred a massive growth in the supply of single family homes, McMansions in particular. The boom in housing wasn't organic. It was created artificially by irresponsible monetary policy and resulted in a gross overcapacity. A bust was inevitable. Now as a result of that carnage an inordinate number of people, people who might have otherwise bought homes, are now forced to rent. That excess has spurred the construction of multifamily homes.

China is another perfect example. They built entire cities that remain ghost towns. On the surface, it would appear to be supply side economics gone bad. However, the Chinese did this using unnaturally low interest debt. But demand fell far short of expectations. The mountain of debt they've incurred to create this massive overcapacity is drowning them. We're seeing it in an overcapacity of iron production estimated to be 40%. The same thing is happening in our fracking industry over here. The growth in capacity was built on cheap debt, not free cash flow.

The difference with Apple is that it has advanced technology. The growth in demand is organic, though easy credit still plays a large part. I think it is arguable that on a level playing field (Chinese labor costs) the iphone would cost much more than it does and if credit wasn't so easily obtainable, fewer people would own smart phones. In fact, the iphone might not even exist yet.

Mises and the Austrians recognize that the boom that occurs as a result of artificially low capital costs is the problem. Too much money flowed into housing just as too much money has now flowed into fracking. The bust is actually the solution. It needs to happen. It redirects capital to more efficient purposes.

The bottom line is that when honest price discovery exists, supply in innovative products or services creates demand. When the demand is artificially created via the suppression of the cost of capital, the supply may follow, but the demand will be unsustainable as we approach peak debt.
 

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