Positive surprises from government reports on retail sales, industrial production, and housing in the past few months are leading economists to revise their real gross domestic product (GDP) forecasts upward supporting the notion that the recession ended in December or January.
Bear in mind: This recovery won’t have the vitality normally associated with an upturn. Economists now expect real GDP growth of about 1.5 in the first quarter. That’s better than the 0.4 the consensus projected in December, but much of the additional growth will come from a slower pace of inventory drawdowns, not from surging demand.
Moreover, the economy won’t grow fast enough to help the labor markets much. The only good news there is that jobless claims have fallen back from their spike after September 11 and that their current level suggests the pace of layoffs is easing.
The recovery also does not mean the Federal Reserve will raise interest rates soon. The January price indexes show that inflation remains tame. Consequently, the Fed can take its time shifting monetary policy from extreme accommodation to relative neutrality.
Perhaps the best news from the latest economic reports was the January data on industrial production. Total output fell only 0.1, its best showing since July. Factory output was flat, also the best performance in six months. Those numbers may not sound encouraging, but manufacturers have been in recession since late 2000. The data suggest that the factory sector is finding a bottom from which to start its recovery.
Production of consumer goods, for instance, is almost back up to where it was a year ago. That’s because consumer demand for motor vehicles and other goods and the housing industry remained healthy during the recession, and they are still growing in early 2002.
Besides, both the monthly homebuilding starts number and the housing market index for the past two months are running above the averages for all of 2001, suggesting that home-building is off to a good start and probably won’t be big drag on GDP growth this year.
Equally important to the outlook is how the solid housing market will help demand for home-related goods and services. Traditionally, consumers buy the bulk of their furniture, electronics, and textiles within a year of purchasing their homes. Thus, spending on such items will do well this year, even as car sales slip now that incentives are less attractive. Look for the output of consumer goods to top year-ago level in coming months.
Even the business equipment sector seems to have bottomed out. Its output rose 0.4% in January, led by a 0.6% jump computer gear. A pickup in orders for capital goods in the fourth quarter suggests that production will keep increasing—although at a relaxed pace—in coming months.
Tag: Recession
Recovery in Economy
Tags: drawdown, incentive, inventory, Recession, spike, upturn
Green Lining in The Recession
Many factories fell in a night after the crises burnt up. Output of autos, electronics and other goods from factories in Mexico’s Ciudad Juarez, Monterrey and Toluca has fallen so sharply that the amount of cargo trucked across the U.S. border has dropped 40 percent. In India, enough small steel-rolling mills around Delhi have closed that levels of sulfur dioxide (which forms acid rain) fell 85 percent in October 2008 compared with a year earlier. The recession is bringing a green dividend in the developed world, too. Reduced economic activity is projected to cut Europe’s emissions of carbon dioxide, the chief man-made greenhouse gas, by 100 million tons in 2009, and the United States’ by about the same amount.
It is no coincidence that some of the dirtiest industrial operations are falling victim to the global recession. Over the past two decades, much of the world’s manufacturing moved to where pollution standards are little more than mild suggestions. Since small, corner-cutting, inefficient facilities tend to both flout pollution laws and be most vulnerable to a sudden drop in demand, the global recession has hit such operations especially hard.
In recent years there have been several radical outbreaks of disease, the origins of which can be traced back to the contamination of food products during food processing; a direct result of dirty or unhygienic factory space.
They can run, but cannot hide. They owed people too much, and they encountered the recession.
What is startling is that the prevalence of unhygienic food processing plants is on the rise and, oddly enough. People will use ”non-green” methods in order to survive. Older vehicles that are cannibalized for parts begin to pile up on private property. More wood fuel is used instead of cleaner-burning natural gas. [fuels often, as with the 1982 recession, harvested illegally] . Lower -octane gasoline is burned in older vehicles that are less fuel efficient. Overall infrastructure begins to erode causing the greater usage of diesel-burning heavy equipment to repair if and when funding becomes available. Criminal activity is enhanced, leading to further environmental degradation, as the by-product of meth manufacture and marijuana cultivation ends up in lakes and streams, into potable water supply. At what point does ”recession” begin to hurt more than help? Where will enhanced poverty create insurrection, revolution and war which also contributes to further environmental problems?
The real challenge is what to do when orders pick up again. If factories ramp up to 2007 production and pollution levels, the time-out offered by the green recession will have been wasted. There are hints that that might happen. Factory owners in China and elsewhere argue that their top priority should be job preservation, and that spending money on pollution controls or switching to renewable energy has to wait. In Guangdong province, factory owners are lobbying the government to roll back environmental standards that, they argue, have made them uncompetitive with Southeast Asia. And factory managers, under pressure to cut costs, know they can reap easy savings by turning off smokestack scrubbers and dumping waste rather than treating it.
Obviously, using the downturn to institute greener practices is more of a challenge.
Tags: environment, Output, pollution, Recession