The American economy recovers -- as predicted
Gerard Jackson
August last year I predicted that America's employment rate would start picking up within six months or so. I also stated that, given the scant statistics available to me, the productivity surge indicated recovery. In the same article I derided the notion of a jobless recovery, pointing out that the productivity surge was really a leading indicator of a rise in the demand for labour.
The results are in: during the last three months payrolls expanded by 1 million. March and April figures had to be revised upwards to reflect the addition of 353,000 and 346,000 jobs respectively.
These figures completely dwarf Kerry's promise to generate 10 million new jobs in four year
As a member of the Austrian school of economics it is my contention that a true boom cannot be occur without the higher stages of production rapidly reducing 'idle' capacity. In other words, manufacturing, particularly the capital goods industries, must be quickly increasing output and its demand for labour.
Recent Data from the Institute of Supply Management, which monitors the state of the manufacturing sector, showed that production, new orders and the demand for labour were rising strongly. The rate of increase in the demand for labour in manufacturing is now the highest since 1973. The strength of recovery is also indicated by the fact that the speed of supplier deliveries is at its highest since April 1979.
Commentators have pointed out that the state of supplier deliveries means that production is lagging behind rising demand and pulling up commodity prices. But they've missed the important point that commodity prices have been on the rise for sometime.
Last March I observed that the real recovery "begins in manufacturing and is accompanied by rising commodity prices." The latest figures bear witness to this view. It's not saying much for economic commentators who have no idea of the link between commodities and economic recovery.
Two powerful forces have been at work in the economy. The first was the Bush tax cut. With respect to the cuts I stated at the start of February last year: ". . . the beneficial effects of the cuts will certainly have made their presence by late 2004 . . . therefore revealing the economic wisdom of the cuts and the political shrewdness of the man who made them."
The second force at work is the Fed's loose monetary policy. Since last June the Fed has kept the overnight rate at 1 per cent, the lowest in 46 years, and it intends to keep it below 2 per cent for a while. This is what some commentators call an "accommodative policy". The rest of us call it econ speak for inflation.
Just as the Fed's loose monetary policy generated the Clinton boom, the same policy is now helping to do the same for Clinton. The difference is that Clinton's tax increases hindered recovery, despite the monetary expansion, while President Bush's tax cuts are accelerating it.
Unfortunately, just as I said the Clinton boom would eventually result in a bust, the same must also be said of the Bush boom. How long it will take before the inevitable bust I cannot say at this stage — but bust it must.
I just hope the boom is sufficiently lasting to keep the Democrats out of power long enough until enough of them get sufficient hold of their senses to snatch the party back from its hardcore loonies. Unfortunately, I fear my hope is akin to wishing for a visit from the tooth fairy.
Gerard Jackson is Brookes' economics editor
BrookesNews.Com
Monday 7 June 2004