Friday, October 26, 2012

A Chicken & Egg Problem

For GDP growth to look handsome,
Manufacturing's got to expand some,
But someone must buy
That expanded supply,
So we've got to expand our demand some.

"Without Demand, Manufacturing Can’t Pump Up Output or Jobs," says The Wall Street Journal's Real Time Economics blog. As much as many, including the White House, have pinned their expansionary hopes on a US manufacturing renaissance, this only works if foreign and domestic demand keeps those factories busy. Right now, both appear to be softening.

Recent factory surveys from the Federal Reserve Banks of New York, Philadelphia, Richmond and Kansas City show more respondents reporting falling orders than expanding. Moreover, "a third-quarter survey done by professional services firm PwC found 67% of major U.S. industrial multinationals said 'lack of demand' was an expected barrier to their company’s growth over the next year. That was the No. 1 choice among a list of obstacles that included energy prices, regulatory pressures and taxes, and was a jump from 48% pointing to a lack of demand in the second quarter."

Third quarter US GDP is set to be announced this morning at 8:30, with the consensus forecast of an expansion at a tepid 1.7% annualized rate. At the moment, the prospect of manufacturing our way to faster growth looks dim.

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