Its the economy, stupid

I’ve been saying that the economy is getting better for a while now. Even way back in July (when Merrin was out of work), my job was hopping as more companies were making plans to travel and spend money next year.

I was flat out shocked when the economic numbers came out this week. The growth was 7.2 percent! For those that are “big fans” of economics, 7.2 percent is huge. It’s massive. It’s a growth rate that hasn’t been since in 1984. There are a lot of things that have pushed the economy forward (and there are a lot of places that you can go talk about them, if you’re so inclined).

I kinda agree that it has a lot to do with the President’s third series of tax cuts. Everyone is getting a little more in their paychecks because there the tax withholding is lower now. It’s not a lot, but you would be amazed at how handy an extra $50 can be. A lot of people got checks from the Fed in the summer, too, and I think they went out and spent them. The child tax credit amounted to something like $400 checks for a lot of people. I have no kids, so I didn’t get a check and I can’t really say how much it was exactly. But it’s pretty clear that people are spending.

As an economics geek, it’s very cool to see big indicators moving, because it shows more than just a consumer driven increase. (IMHO, consumers would never be able to impact the growth to 7.2% just on consumer purchases.) Take a look:

  • The economy is adding new jobs. Increasingly optimistic economic outlook has begun to translate into hiring and employment has started to rise. Businesses hired 57,000 new workers last month after seven of cuts.
  • The stock market is up 30 percent since March.
  • Inflation is low.
  • After-tax incomes are rising.
  • Home ownership reached an all-time record of 68% (of American households) in the third quarter.
  • Productivity is high.
  • Durable goods orders – orders for those goods lasting 3 years or more – rose in September for the fourth month in five. This means another increase in business spending.
  • Factory orders, especially for high-tech equipment, have risen over the last several months. New orders for non-defense capital goods, excluding aircraft, rose 3.9% last month. Unfilled orders for such equipment rose 1.2%. New orders for computers and electronic equipment increased at a 36% rate in the third quarter.
  • Both auto and non-auto consumer spending are strong. Consumer spending increased at 6.3% annualized pace last quarter, the biggest increase since the third quarter of 1997.
  • Industrial production posted a solid increase in September and a 3.3 percent annual rate of increase for the third quarter as a whole. The fifth consecutive month of increases in business equipment production suggests a sustained period of rising investment spending.
  • Housing starts rose 3.4 percent in September to an annual rate of 1.888 million units, higher than market expectations and approaching the highest level since 1986.
  • Car and truck sales 37% annual rate to a 17 million unit pace in the third quarter, the fifth highest on record. Incentives are moving this number, but it shows that individuals & companies feel confident in spending capital.
  • Small business optimism recently reached a record high level, according to the National Federation of Independent Business, and confidence among large-company CEOs reached its highest level in eleven years according to the Conference Board.
  • Consumer confidence is rising. The Conference Board reported that consumer confidence index rose to 81.1 in October from 77 in September, reflecting increases in present conditions and expectations. The report showed a rise in plans to buy autos and appliances. Some 19.7% indicated in October they expect jobs to become available within the next six months, the most since June of 2002.

Say what you will about how we got where we are and what we’ve all been through in the past year, but things are definitely looking much, much better.

More from elsewhere —>

“America’s economic report card was released Thursday and it was nothing short of stunning. The U.S. economy grew 7.2 percent in the third quarter, a pace not seen in nearly 20 years. Equally impressive and, let’s hope, a long-awaited harbinger that the job drought is about to end, business investment grew more than 15 percent, double the rate of the previous quarter. When businesses spend that kind of money on equipment, it means they’ve decided this recovery is for real. They’re ready to crank up and start hiring again.” (Editorial, Chicago Tribune, 10/31/03)

“Pop the champagne corks,” Bank One chief economist Diane Swonk says. “It’s very much vindication that the U.S. economy is moving from a lackluster economy to a more rooted recovery.” (USA Today, Keen, 10/31/03)

“The U.S. slowdown is over, dead, gone, defunct, finished and unlikely to return soon,” said Sherry Cooper, chief economist with BMO Nesbitt Burns. (AP, Aversa, 10/30/03)

“There should be no doubt that the president’s jobs and growth package was largely responsible for the torrid third quarter growth rate,” said economist Rich Yamarone of Argus Research in New York. (The Washington Post, Berry, 10/30/03)

“This has President Bush’s fingerprints all over it,” said Richard Yamarone, director of economic research at Argus Research Corp. “We must give credit where credit is due. There should be no doubt (the tax cuts) were largely responsible for the torrid third-quarter growth rate.” (The Star-Ledger (NJ), Ali, 10/31/03)

“This indeed signals that the threat of recession, looming since 2001, is behind us.” (Editorial, The San Francisco Chronicle, 10/31/03)

“This is a gangbuster number. Everything came together for the economy in the third quarter,” said Mark Zandi, chief economist at (AP, Aversa, 10/30/03)

“The 7.2% growth rate that the Commerce Department has measured for the American economy in the third quarter of 2003 is stronger than anything ever achieved under President Clinton’s boom. It is being attributed by President Bush to tax cuts. … And it stands to reason. The tax reductions on capital gains and dividends, along with the accelerated reductions in personal income tax rates, were signed by President Bush on May 28, 2003.” (Editorial, The New York Sun, 10/31/03)

“This is a great report for the economy,” said Cary Leahey, senior U.S. economist at Deutsche Bank Securities. “Not only was the headline strong, but the mix was good and it implied a good fourth quarter.” (Reuters, Ahmann, 10/30/03)

“I’m floored,” said Anthony Chan, managing director and chief economist at Banc One Investment Advisors. “This really tells us that all the pieces are now falling into place.” (Dow Jones, Schulte, 10/03/03)

“It is nearly impossible to believe that the economy is not setting itself up for a break to the upside on job creation sometime during the first quarter of 2004,” said Anthony Chan, chief economist at Bank One Investment Advisors. (Reuters, Ahmann, 10/30/03)

“There’s nothing but good news here,” said Laurence H. Meyer, a former Federal Reserve governor and visiting scholar at the Center for Strategic and International Studies, Bloomberg News reported. “A key component that people had been worried about – business fixed investment – was very, very strong. The economy has turned the corner.” (The Dallas Morning News, DiMartino, 10/31/03)

“This is obviously an extraordinarily strong report, led by the consumer, but also with good signs about the state of the business sector and business confidence,” said Lehman Brothers economist Drew Matus. (CNN, Gongloff, 10/30/03)

“This bodes very well for output in the coming quarter as stocks are replenished,” said Adam Cole, strategist at Credit Agricole Indosuez. “Overall, the data are clearly encouraging for growth – not just in the quarter just ended, but also going forward.” (Financial Times, Hughes, 10/30/03)

“Not only can millions of hard-working people celebrate — they should. They’ve earned the right. That’s why we can’t rain all over their efforts — their motivation and innovative spirit and can-do attitudes. Those good feelings, as any economist will tell you, are key drivers of company productivity and consumer confidence. … The facts are, companies are not bricks and mortar, but people, with blood and sweat and tears. People are the reason for the recent recovery, and people are the reason it will continue — if it does. That’s why we need to tell the people who have earned it not ‘but,’ but ‘Bravo.’” (Op-ed by Jack Welch, The Wall Street Journal, October 30, 2003)

“Now it’s impossible to deny. The economy is in recovery. And that recovery is robust. I mention this because as recently as a few weeks ago, some of President Bush’s most prominent bashers were claiming that we were in “the worst economy since Herbert Hoover.” That’s a little difficult, even for them, to say with a straight face when we’ve just finished our best quarter since the fourth year of President Reagan. First, exactly how big is 7.2% growth in economic terms? It is very big. It’s about twice as large an increase in national wealth as President Clinton’s average annual growth rate, 3.6%, and two-and-a-half times the rate of growth of Mr. Clinton’s first 11 quarters, 2.9%.” (Op-ed by Jerry Bowyer, The New York Sun, 10/31/03)

“Business is finally coming out of its cocoon, and not just with tech spending but across the board,” said Gerald D. Cohen, a senior economist with Merrill Lynch & Co. “This is just what we were looking for.” (Los Angeles Times, Gosselin, 10/31/03)

“Now that we have strong economic growth, can solid job growth be far behind?” said Joel Naroff, the chief economist for Commerce Bank in Cherry Hill, N.J. “That is the final piece to the puzzle, and while it may take a few more months before we see it, it is coming.” (Knight Ridder, Moritsugu, 10/31/03)

“It’s been a long time coming,” Richard Berner, chief U.S. economist at Morgan Stanley in New York, said about a recovery. “But I think it is here.” (Chicago Tribune, Oneal, 10/31/03)

“My guess is we’ll see a pretty good snap-back” when inventories are rebuilt, said Morgan Stanley’s Berner. “There is a lot of conventional wisdom that this is some sort of heroin-induced high and that we’ll lapse back into sluggish growth. But I don’t believe it.” (Chicago Tribune, Oneal, 10/31/03)

“This quarter makes a case for a year ahead of above-potential growth,” says Bob Gay, an economist at Commerzbank Securities in New York. (The Christian Science Monitor, Scherer, 10/31/03)

“The business sentiment has shifted,” said Keitaro Matsuda, senior economist at Union Bank of California. ”Companies are now thinking more strategically and investing for future growth.” (San Jose Mercury News, Sylvester, 10/31/03)

“The nation’s economic engine seems to have been restarted,” said Lynn Reaser, chief economist with Banc of America Capital Management. (The San Francisco Chronicle, Zuckerman, 10/31/03)

“Tax cuts work. If the great American growth experiment tells us nothing else, it is that if you throw everything you have at an economy at an early enough stage, it will eventually respond. It may have taken one of the most aggressive monetary policy decisions in history and billions of dollars in tax reductions, but the go-for-growth strategy has succeeded. America’s policymakers have not only steered their country away from deflation, they have delivered the best economic performance the US has seen for 20 years.” (Op-ed by Patience Wheatcroft, The Times (London), 10/31/03)

“Many economists lauded Bush’s broad tax cut package of $1.7 trillion as having helped lift the sputtering economy from its bleak rut of the past year – the result of corporate scandals and global unrest. “It shows you that his policies are giving us a realistic payoff,” said Hugh Johnson, managing director of First Albany Corp.” (New York Post, Tharp, 10/31/03)

“People were getting their refund checks or getting their withholding reduced,” said Jack Kyser, chief economist with Los Angeles County Economic Development Corp. “So, there was a lot of money floating around.” (Los Angeles Times, Sanchez, 10/31/03)

“I thought this was going to be a barn-burner of a quarter, but this even exceeded my expectation, and just about everyone else as well,” said PNC Financial chief economist Stuart Hoffman. (The Star-Ledger (NJ), Ali, 10/31/03)

“It’s a very strong signal that we’re going to move into a period of sustained economic growth,” said Donald Grimes, senior research associate at the University’s Institute of Labor and Industrial Relations. (The Michigan Daily, Ladika, 10/31/03)

“With initial claims for unemployment insurance dropping, and real GDP growth running well above our potential, significant job growth cannot be far behind,” said U.S. Chamber Chief Economist Martin Regalia. (Newsday, Toedtman, 10/30/03)

“When you talk about an $11 trillion economy, each tenth of a point translates into hundreds of thousands of jobs and billions of dollars in goods and services,” said Stephen Happel, an economics professor at Arizona State University. Added Marshall Vest, a senior economist at the University of Arizona, “You’ll definitely see stronger employment growth going forward.” (The Arizona Republic, Higuera, 10/31/03)

“I’m very encouraged that businesses are feeling better and spending money on computers, pickup trucks, ball bearings, software, etc.,” said Sung Won Sohn, Wells Fargo’s chief economist. “The next step will be inventory rebuilding and hiring more people.” (AP, Aversa, 10/30/03)

“There is no way to make this [GDP] number bad, even if you want to.” – Steven Poser, president, Poser Global Market Strategies (The Wall Street Journal online, 10/31/03)

5 thoughts on “Its the economy, stupid”

  1. I hope you and other’s are right. I’ve been watching it from two perspectives: the construction industry and the tech industry. Construction has picked up a little, but it is still very very slim pickings. The tech industry is still struggling to stabilize I think, especially regionally in this area. I think part of the small business interest is due greatly to the number of layoffs. Some of these people can’t find anywhere to go; so they are trying to make a go of it for themselves. Housing/auto purchase have been fueled a great deal by low interest rates, and in the case of houses lots of people moving out. I’m not an economic geek, just sharing what sadly little I have observed and in full ignorance thought I would share.

  2. You definitely have some good observations, LA, but I think that some of the changes you note are part of the “new economic dynamic” for a long, long time to come.

    For example, people are free-lancing, contracting, and starting their own ventures in the tech & communincation sectors because the pay scales are dramatically inflated over the market value. Five years ago, you had to pay top dollar just for entry level positions. There just wasn’t a lot of skilled employees available. It was a sellers market for the employees. Today, the same skill set is becoming more and more common. It’s more of a buyers market. People who were making the top scale were layed off. Those same folks have chosen to go out on their own in many cases than to take a a horizontal position with lower pay. It’s really a simple (albeit painful) truth in developing industries. You can see the same think in engineering & other fields in developing nations.

    Rebates on autos are the bane of the industry and you can be certain that they regret it. But they are only offsetting some profit for market share. Long term, it should be a sound strategy because the cost of loaning money is next to nothing right now. With an improving economy, defaults should stay at their current level or even decrease slightly. The auto industry is poised to come out ahead long term.

    Construction is varied. There is a lot of consolidation in the industry, from what I read. That would seem to indicate that it is a very competetive market – which you hit upon. Consolidation is generally a sign that comptetion is so fierce that it’s hard to make a profit. In turn, you consolidate and hopefully increase your productivity and reduce your costs & duplication. It’s sometimes the difference between a small profit and a small loss, but on a large scale – it is significant.

    I think the numbers vary from region to region, but it would seem that people are not moving out of the private housing sector. Most home sellers become buyers in the market, and so on. The biggest boost in the housing market, though, remains from first-time home ownership. In every region, the housing market is increasing. That’s a very good sign.

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