It looks increasingly like the economy is doing the Federal Reserve’s work in bringing down inflation, says the most recent economic data. And our government is doing its part.
Much of recently enacted U.S. government programs will modernize the U.S. economy, increasing its efficiency (e.g., better roads and bridges, Internet, health care, less pollution), which will continue to bring down inflation.
As Nobel Prize-winner Joe Stiglitz said recently in a MarketWatch article, “Thanks to President Joe Biden’s recovery bill (the American Rescue Plan), the United States had the strongest recovery of any of the world’s advanced economies, reducing childhood poverty by almost half in the space of a year.
“Biden also oversaw the passage of the first major infrastructure bill in decades; America’s first major legislative response to climate change, the Inflation Reduction Act; and a major industrial-policy bill, the CHIPS and Science Act, which explicitly recognizes the government’s key role in shaping the economy. And these landmark bills all passed despite a historically unwieldy Congress,” said Professor Stiglitz.
This Friday’s upcoming Producer Price Index for raw materials should also telegraph another drop in inflation before the Fed Governors convene their last meeting of the year, as raw material prices for almost everything (copper, steel, fossil fuels) are in decline.
A worldwide drop in fossil fuel consumption is causing our gas prices to fall below the $3.50 per gallon price that prevailed before the Ukraine war. This should be good news for continued domestic growth, even if declining prices are a sign of slow growth elsewhere.
Even today’s reports of higher factory activity, and the ISM’s index of service-sector growth show the U.S. economy expanding, not contracting.
The ISM’s non-manufacturing survey, a barometer of U.S. business conditions at service-sector companies such as banks and restaurants rose to 56.5 percent in November, which is a strong showing that shows the economy still expanding. Numbers over 50 percent are a sign the economy is growing, and figures above 55 percent are viewed as exceptional.
“In November, the Services PMI® registered 56.5 percent, 2.1 percentage points higher than October’s reading of 54.4 percent. The Business Activity Index registered 64.7 percent, a substantial increase of 9 percentage points compared to the reading of 55.7 percent in October. The New Orders Index figure of 56 percent is 0.5 percentage point lower than the October reading of 56.5 percent,” said Anthony Nieves, CPSM, C.P.M., A.P.P., CFPM, Chair of the Institute for Supply Management® (ISM®) Services Business Survey Committee.
Economists have pointed out the service sector that includes leisure activities (dining out, travel) is playing catching up as we recover from the pandemic, while consumer spending holds steady over the holidays.
And orders for U.S. manufactured goods rose 1 percent in October, the U.S Census Bureau said Monday. This was the twelfth increase in the past thirteen months. Durable-goods orders rose a revised 1.1 percent in October compared with the initial estimate of a 1 percent gain (things lasting more than 3 years, autos, appliances). Orders for nondurable goods were up 1 percent in the month.
Fed Chair Powell recently said the Fed Governors are leaning to a more moderate increase of just 0.50 percent at their December FOMC meeting, rather than the last four 0.75 percent interest rate increases.
Let us hope they continue to lean in that direction. Consumers may help as they have historically slowed spending in January to save up for taxes and future spending sprees.
Harlan Green © 2022
Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen
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