Quotable

“Hunger, love, pain, fear are some of those inner forces which rule the individual's instinct for self preservation.”
                                          Albert Einstein

Commentary & Analysis
Demand elusivity.

Keynesian economics are known for encouraging government and public sector involvement to help smooth out rough patches in the business cycle. In the wake of the 2008 financial crisis, central bankers and global policy-makers adopted a Keynesian tilt in their responses.

As demand dried up and deleveraging ensued, one kneejerk reaction was to shore up global demand through easy money et al. While the following two years showed that policy-makers perhaps succeeded in stabilizing market sentiment and loosening up frozen credit markets, their efforts have not done a whole lot toward the ultimate goal of revitalizing demand. Demand became somewhat elusive.

We have seen global manufacturing drive the recovery. The series of charts below reveal some of the picture, at least as it concerns the US:

US Institute for Supply Management Index

Eurozone Purchasing Managers Index

US Exports of Industrial Supplies

But that’s just the first part of the picture. This return of manufacturing and rebuild of inventories has not been met with sufficiently strong demand.

ISM Manufacturing Inventories have reached levels not seen in 27 years.

Sales among Manufacturing Corporations are rebounding, but they still sit well off the pre-financial crisis highs.

The rate of consumer credit growth year-over-year is still in negative territory.

The rate of growth in revolving consumer installment credit year-over-year is still very much negative, i.e. consumers are not whipping out their credit cards nearly as frequently as they were leading up to 2008.

And finally ...

Personal consumption expenditures have bounced back from extreme depths. But how much is that due to larger required outlays for food and gas? What’s in store for personal consumption considering what looks to be a changed attitude toward debt? And what about the unemployment rate?

A lot of the rebounds we’re seeing in the data look good, but they must be sustained. Otherwise, the inflation we’ve seen in asset prices could quickly go out the window, jeopardize the economy and bring back fits of deflation.