Economic Notes: Watching the Paint Dry
5/18/2009
The Federal stimulus package enacted in February moved through Congress at light speed. Its actual economic effects will proceed more slowly, like paint drying on a damp day.
In April, the stimulus began to find its way into the economy as paychecks grew as a result of changes in tax withholding. But those benefits came too late to influence April's consumer spending to any measurable degree.
After rising in the first two months of 2009, retail sales fell in March and April. The Census Bureau’s advance estimate has April’s sales at about the same (i.e., abysmal) level recorded in December 2008 and 11.4% below a year ago (y/y).
In the face of the consumer’s continued lethargy, the nation’s manufacturers continue to slash production. The Federal Reserve reported that manufacturing output continued to decline (down 16% from its 2007 peak) and, in April 2009, manufacturing capacity utilization was at its lowest level in over 20 years. Reflecting this pullback, manufacturing employment is down by more than 13% since the recession began at the end of 2007.
As a consequence of these production cutbacks, firms have reduced inventories and made some progress in realigning on-the-shelf product with sales. When April’s data becomes available, it is likely that both measures will have improved significantly.
Even though manufacturing can expect increased domestic demand from the stimulus package, persistent weakness in international trade will retard its recovery. While economic contractions (or much-reduced growth) among the nation’s trading partners has reduced exports generally, the brunt of the reduction was in the sales of goods to other nations, which dropped by 21.9% y/y as compared to a 6.8% decline in services exports.
The paint will be long dry before those numbers turn positive.
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The statements, opinions, and conclusions contained herein are based solely upon the author’s own studies, research, and personal experience. Neither J.H. Cohn LLP nor the author makes any representation or warranty as to the accuracy or completeness of this information. J.H. Cohn LLP and the author expressly disclaim any liability for any loss or damage which may be incurred, of any kind whatsoever, as a result of or arising from the use of any of the information contained herein or reliance on the accuracy or completeness of it.
For more information, contact Patrick O’Keefe, director of economic research at J.H. Cohn, at
pokeefe@jhcohn.com
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