Breaking News
0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

U.S. Economy: Running Fast And Furious, But, To What End?

By Ed YardeniMarket OverviewJun 06, 2021 11:55PM ET
www.investing.com/analysis/us-economy--running-fast-and-furious-but-to-what-end-200584518
U.S. Economy: Running Fast And Furious, But, To What End?
By Ed Yardeni   |  Jun 06, 2021 11:55PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

The current business cycle has been unprecedented. It has been fast and furious so far. Last year’s recession was among the worst in US history, but it lasted just two months. The V-shaped recovery in real GDP has been one of the fastest on record, with real GDP likely to surpass its previous Q4-2019 record high during the current quarter. That means that the full recovery in real GDP lasted five quarters, with the economy now in the expansion phase of the business cycle.

Not surprisingly, this remarkable performance has been reflected in the unprecedented V-shaped recovery in corporate earnings, also to record highs, in recent months. That's propelled stock prices to record highs so far this year.

Meanwhile, policymakers continue to step on their growth accelerators, hoping that inflation and financial stability remain under control. Monetary policymakers are still purchasing $120 billion per month in fixed-income securities. Some of them are starting to talk about talking about tapering these purchases.

Tapering may be months away, and hiking the federal funds rate won't start until at least a few months after tapering is done. The Biden administration is pushing for more spending that will result in trillion dollar annual deficits in coming years even if taxes are raised to cover some of the spending.

Here are some of the most recent fast and furious consequences of all the high-octane fuel provided by the policymakers:

  1. Prices-paid and prices-received indexes. The prices-paid index included in May’s national survey of manufacturing purchasing managers (M-PMI) remained near April’s reading, which was the highest since July 2008. That’s not a surprise since the average of the May prices-paid indexes reported in the regional business surveys conducted by five Federal Reserve Banks jumped to the highest reading on record. The average of the five regional prices-received indexes also jumped to a record high in May. All 10 regional prices-paid and prices-received indexes are at or near record highs. (The data for the regional surveys start in 2005.)
  2. Backlogs for the record books. May’s national M-PMI survey showed that supplier deliveries and backlog of orders rose to record highs last month. In addition, the customer inventories index fell to another record low. The average of the five regional indexes for either unfilled orders or delivery times rose to a record high in May.
  3. Capital spending. The good news is that the inflationary economic boom is great for corporate profits, which is great for capital spending. The y/y growth rate in weekly S&P 500 forward earnings is an excellent coincident indicator of the y/y growth rate in nondefense capital goods orders excluding aircraft. Sure enough, the latter measure of capital spending on equipment and machinery jumped 0.9% m/m and 22.0% y/y to a fresh record high during April.
  4. Bottom line. What the economy is experiencing may simply be a business cycle set to “fast forward” by the insanely stimulative combination of fiscal and monetary policies. We had a terrible recession last year that lasted only two months. Twelve months later, the economy had fully recovered, based on most macroeconomic indicators. Booms usually occur at the tail ends of expansions. This time, one started during the tail end of the recovery and continues at the beginning of the expansion.

That’s all great until it isn’t—because, as we all know, booms are followed by bananas. Economist Alfred Kahn, an economic adviser to former President Jimmy Carter, warned lawmakers in the ’70s that if they didn’t get inflation under control, the nation was headed for a recession or a depression. To avoid scaring the public during his testimony at the Capitol, instead of saying “recession” or “depression,” he simply said “banana.”

U.S. Economy: Running Fast And Furious, But, To What End?
 

Related Articles

U.S. Economy: Running Fast And Furious, But, To What End?

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email