Business Activity Indicators
Financial Indicators - United States
Selected International Transactions - United States
The modern god is the God of Growth, and his name is GDP. Like other gods, he unites us, comforts and sustains us, and gives us hope. Like other gods, too, he reflects our needs and fears, and he confers benefits on his constituencies.
All gods reflect the times in which they live. The god of the Aztecs was the Sun God who rose over their parched desert every morning and disappeared every evening. The Aztec people dreaded the thought that he might fail to rise some morning and bring disaster upon them. So they appeased him by offering human blood sacrifices, just as the people of Abraham had offered animal blood sacrifices to their God in another time and another place.
The Sun God had three constituencies. The priests conducted the sacrifice rituals attended by all the people. They gained esteem and power from their role as intermediary between the people and their Sun God. The warriors and their king obtained sanction for their wars of conquest since these were the necessary foundation for obtaining the wealth to build the temples and for seizing the prisoners whose lives were sacrificed to the god. The people obtained structured lives in which they performed their daily toil and attended the sacred rites of the temple, assured by their priests that the Sun God would not fail them so long as they faithfully performed their obligations to him.
Thus, all groups were united under their god.
The medieval Christian God performed a similar role. This God was proclaimed by the simple Nazarene who taught submission to the will of God, for "my Kingdom is not of this world". Life in this world was only a preparation for life in the next - in heaven, provided the individual proved worthy of it.
This message resonated in the Middle Ages which were permeated with hardship, pestilence, violence, and death. Since people obtained little joy from their daily lives, they could easily resign themselves to enduring this burden in order to assure themselves of a better one in the next world.
The Christian God, too, served the interests of His constituencies. The Church was the necessary intermediary between God and his people. Attendance at Mass was the most sacred duty of the believer. Marriages, baptism, and funeral rites were the province of the Church. Heaven could not be obtained without this intermediation. The Church became the center of all social life and the clergy a part of every family.
Kings and princes, too, benefited from the Christian God since they soon conceived that they were God's representative on earth and their power derived directly from Him. Thus the wealth of the entire kingdom - mainly land - ultimately was his to distribute as he willed. This power was tempered in regard to the Church, however, since it had a more powerful hold on the people than he did. Some accommodation between Church and Throne was required through this period.
The people received spiritual if not material help from their God. The Church provided spiritual help in times of sorrow, reassurance when they sinned, and a center for social life. Since they could not hope for much material wealth or betterment in this life, they took comfort in the promise of reward in the hereafter if they were patient in this one. Again, all groups found benefits under the will of God.
The medieval God fractured during the Age of Exploration and the Age of Discovery. Men no longer were bound to the land and the Church. They found greater rewards in the present life and thought less about the future one. The God of Submission became irrelevant.
A succession of gods then ensued. There was the God of Enlightenment, the God of Empire, the God of Manifest Destiny, the God of Material Betterment, as well as new versions of the Christian God. All of these gods had relatively short lives because conditions changed so rapidly. The God of Growth did not emerge until the second half of the twentieth century. Before then, growth was taken for granted. It was endemic, it was vigorous, and it was widespread. Men did not fear that it might falter, and they did not believe it needed any obeisance. This belief was shattered in the 1930s when growth came to a stop and did not resume for twenty years. This experience haunted them for a generation, and they directed all the resources of the private sector and the public sector to prevent a recurrence. Thus was born the God of Growth.
GDP, unlike earlier gods, is not a remote god but is quite close to the people. They can observe his movements and watch him closely. There are many omens to help them do this. There are weekly omens, monthly omens, quarterly omens and yearly omens. In addition there are individual guidances that serve as as well. These omens must be interpreted, and this has created a new type of clergy or seers to follow the omens and predict the next movement of GDP. The Chief Seer and his Committee meet periodically to review the omens and to determine what they portend. They then issue a report that is widely believed, for the people desire assurance. Like weathermen, they may be wrong in their forecast, but this does not seem to lessen their continued acceptance.
GDP has great rewards for His constituencies.
For the Business community, he offers expanding markets, larger enterprises, new fields of enterprise, and ever growing income. He offers a world of unlimited growth and ever expanding desires to be satisfied by savvy new entrepreneurs who are perceptive enough to glimpse the future. For the princes who head them, the modern fiefdoms offer fabulous rewards. Where once millionaires formed the business elite, now billionaires do so. A modern prince in one year is rewarded so handsomely that he and his descendants for generations to come need work no more, should they so desire. Business, therefore, renders great homage to GDP and tolerates no questioning of His virtues.
For the Government Sector, GDP provides rising revenues, expanding activities resulting from ever more complex economic, social, and legal issues, and the constantly growing importance of maintaining His health. For Representatives and Ministers, technological growth confers an ever more prominent voice in public discussion. Where once they could address an audience of hundreds, now they can address millions. As intermediaries between the collection of revenue and the disbursing of it, they have never before had more power than they do today. With their access to the Media and to the financial support of the Business Sector, they find it easy to dominate political discussion. In this way, it is no longer necessary to suppress dissent from the prevailing faith because the instruments for discussion are solidly in the hands of Believers, and dissenting voices are simply "marginalized" in today's terms. In addition, as we shall see, there is a problem with the People as well. But the net result is a cozy world for Representatives in which they do not have to face serious, deeply divisive issues since these are not raised.
For the People, GDP presents a more ambivalent benefit. The most obvious aspect of it is the material well being. Never before have most of the people lived in such large, luxurious homes, driven such fabulous chariots, enjoyed so much entertainment, had so much freedom to move around, enjoyed so many conveniences, shopped in such grand emporiums, or attended such imposing universities: life has never been so diverse or offered so many opportunities for people to satisfy their desires.
But there are disturbing signs:
There are increasing signs of a war between the God of Growth and the God of Nature.
This dichotomy between well being and terrestrial deterioration has resulted in a curious reaction on the part of GDP's People: they have excluded it from their consciousnesses. That has been easy to do. They have jobs to engage them, conveniences to be maintained, social duties, family obligations, shopping and home maintenance activities, and endless diversions. Their lives are crammed with many small matters so they choose not to focus on larger ones. This makes it easy for their Representatives to ignore these larger questions also, because the People will not raise them or demand action or even discussion of them. Behind this reaction is a troubling question: can the god who has given us so much turn around and do harm to us? This question is too disturbing to pursue, and so we reaffirm our faith and return to the daily demands of home and family, jobs, cars and conveniences, shopping, and our favorite sitcom .
Thus, in our apathy, we are united.
_ _ _
Recently the Growth God has been observed to falter, and this has raised concern. He has faltered before, and it proved to be of no importance. But many of His followers had become convinced that His stride was stronger than ever, and this latest weakness has shaken their confidence. Thus anxiety is higher than it might have been.
For now various bromides are being proposed to restore His lost vigor. Meanwhile, the omens must be watched with even greater attention to discern what they portend for our future. (Andrew W. Caughey)
|Canada||Germany||Japan||United Kingdom||United States|
|Real GDP (% chg. at annual rate)|
|Industrial Prod. (1992=100)|
|Retail Sales (volume chg. 1 yr.)|
|Consumer prices (1995=100)|
|Interest Rates (3 months)|
|Stock Indices (ending)|
|Current Acc't Bal's ($bn) latest 12 months|
|Foreign Exchange Rates|
|Currency units per U.S. $
UK pound in U.S. $s
U.S.: index of major trading partners : March 1973=100
# Euro zone
|Sources: Economist, Economic Indicators, F.R. Bulletin|
The deceleration in major economy GDP growth that emerged in 2000 continued in the first quarter, although the British rate was unchanged; Japan again turned negative. Industrial production edged down except in Germany. Retail sales slumped in the U.S., Germany, and Canada but rose in the U.K. and Japan.
As noted in previous reports, consumer price inflation continued its steady rise except in Japan. Unemployment rates, however, diverged, rising in Canada and the U.S. while falling in Germany and Britain; Japan's rate was unchanged. Interest rates declined except in the Euro zone.
The stock indices had fallen in 2000 except in Canada; during the first quarter the Canadian index joined the party with a sharp correction of its own. The overvalued technology sector has led the decline, but falling profits are pulling down the established sectors as well. We are now in the "recovery is just around the corner" phase, but optimism is now tempered.
Aside from Canada, current account balances were little changed in the first quarter. Despite the mounting U.S. deficit, the U.S. dollar continues to strengthen against major trading partners, confounding traditional economic theory. Apparently normal economic forces provide no correction for trade imbalances in today's economy as capital flows dwarf those resulting from trade. The strong U.S. dollar may be a reflection of the real weakness of other currencies.
|Business Activity Indicators - United States|
|Industrial Production (1992=100)||139.6||147.5||145.6 *|
|Manufacturers' New Orders (billions of $s)||338.5||362.5||343.2 #|
|New Construction Expenditures (billions of $s)||764.2||807.6||844.1 *|
|Real Gross Priv. Dom. Invest. (chained$s)||1,669.7||1,839.8||1,786.8|
|Business Sales - Mfg. & Trade (billions of $s)||787.1||843.3||841.7 #|
|Business Inventories (ending) (billions of $s)||1,138.6||1,204.5||1,203.1|
|Retail Sales (billions of $s)||238.6||256.9||261.5 #|
|Retail Inventories (ending) (billions of $s)||391.8||417.9||417.9|
|Per Cap. Personal Consump. Expend.'s (chained  $s)||21,901||22,853||23,172|
|Nonagricultural Employment (millions)||128.9||131.8||132.6 #|
|* Annual Rate
# Monthly average
|Source: Economic Indicators|
Real GDP increased 1.3 percent in the first quarter, slightly more than the 1.0 increase in the fourth quarter of 2000. The average rate of growth during the current expansion which began in 1991 is 3.6 percent. As gross domestic purchases continued to fall, real private inventories were reduced for the first time in 9 1/2 years.
Industrial production peaked in September 2000 at 149.0 and fell steadily through April to 144.9. Capacity utilization fell to 78.5 percent in April. Manufacturer's new orders have been below the December level every month through April.
New construction expenditures continued to rise through April in just about all sectors. The contracts index, however, reached 152 in January but declined to 144 in April. Gross investment fell in the fourth quarter of 2000 and fell further in the first quarter of 2001. The decline was concentrated in the level of private inventories, which fell as manufacturers experienced slowing sales.
Business sales peaked in September 2000 and have trended lower since then. In contrast, retail sales were basically flat through much of 2000 but rose through April. Both business and retail inventories have been reduced. What we are seeing so far is an interruption in the uptrend rather than a major downturn.
Real per capita personal consumption expenditures continued to rise in the first quarter, including an increase in motor vehicle sales. The consumer has not been a factor in the current weakness. Whether that continues to be the case probably depends on the course of employment. So far the data show employment peaking in March, with declines in April and May. The decline is due to the goods producing sector, but employment growth in services has slowed since the first quarter of 2000. If this slowing accelerates, the consumer could join the business community in cutting back on his expenditures.
|Financial Indicators - United States|
|National Income (billions of $s)||7,469.7||8,002.0||8,189.8 *|
|Per Cap. Disp. Personal Income (chained $s)||23,191||23,640||23,798 *|
|Avg. Real Gross Wkly Earnings (1982=100)||271.25||271.96||271.98|
|Gross Saving "||1,717.7||1,825.2||1,793.8 *|
|Commodity Price Index (1995=100)||73.5||72.7||69.4|
|Producer Price Index (1982=100)||133.0||138.0||141.7|
|Corp. Profits (with i.v.a.&c.c.a.) (billions of $s)||856.0||946.2||893.4 *|
|Interest Rates - 10 year Treas.||5.65||6.03||5.05|
|Money Supply - M3 (ending) "||6,526.4||7,098.1||7,330.1|
|Fed. Res. Open Mkt. Operations @ "||135.8||-63.9||-11.9 #|
|Commercial Bank Credit (ending) "||4,774.6||5,216.1||5,288.9|
|Consumer Credit (ending) "||1,393.7||1,533.2||1,568.6|
|Credit Market Debt (ending) "||25,654.9||27,416.8||27,859.5|
|* Annual Rate
#2 months' datda
@ Net purchases/sales
|Sources: Economist, Economic Indicators, F.R. Bulletin, F.R. Flow of Funds|
National income continued to accelerate in the first quarter including compensation of employees which rose 3.8 percent over the 2000 average. Real per capita income fell .2 percent in the fourth quarter of 2000 but rebounded with a 1.4 percent gain in the first quarter of 2001. Average real weekly earnings rose barely in the first quarter after a weak gain in 2000.
The persistent fall in the personal saving rate resulted in negative $64.4 billion in the first quarter, and this decline more than offset small increases in business and government saving; as a result, gross saving fell after many years of increases. The personal savings rate decline is obviously not sustainable as a source for rising personal consumption expenditures; both must change direction.
The weak commodity price index has now fallen roughly 30% since just 1995, and the weakness extends across both food and industrial categories. the Euro index, however, (March 27th) was 102.2 due to the weak Euro, thereby conferring a competitive advantage on American consumers. This illustrates the disequilib- rium in the current world economy. Producer prices for finished goods rose strongly in 2000, and this rise continued in the first quarter. Consumer durables and capital equipment prices, however, were basically flat.
Corporate profits peaked at $940.5 billion (a.r.) in the third quarter of 2000 and have now gone through two quarters of decline. Together the declines represented the largest two-quarter decline since mid-1992. Part of this decline results from settlement payments made by tobacco companies.
The ten year Treasury rate fell in the first quarter but rose in April and May to 5.46 percent, which was higher than the December rate. High grade corporate bond yields also rose in those months.
The M-3 money supply grew 3.3 percent in the first quarter, one of the highest rates in years. Total bank credit growth slowed in the first quarter, notably in government securities, but also in loans and leases. Consumer credit grew $139.5 billion in 2000, one of the biggest increases ever, and this pace continued in the first quarter. Credit market debt growth in the first quarter was little changed from 2000; both were lower than in 1999.
|Selected International Transactions - United States|
|Trade Balance on Goods & Services ($bns)||-261.8||-375.7||-95.0|
|US Owned Assets Abroad, net [inc/capital outflow(-)] "||-437.0||-581.0||-156.9|
|Foreign Owned Assets in US, net [inc/capital inflow(+)] "||813.7||1,024.2||237.5|
|Net change in Foreign Owned U.S. Securities|
|Sources: Economic Indicators, Survey of Current Business|
The negative balance on goods and services increased slightly in the first quarter of 2001. Both exports and imports decreased; exports fell after 6 consecutive quarters of increases, and imports fell after 32 consecutive quarters of increases. The surplus on services fell relatively more than the deficit on goods.
U.S. capital flows abroad accelerated in the first quarter whereas foreign flows into the U.S. declined; consequently, the net change in investment position was smaller than in 2000 on an annual basis.
Foreign purchases of U.S. securities were exceptionally strong in 2000, and this strength continued in the first quarter. Foreigners continued to shift their investments away from Treasuries and into government sponsored agency securities as well as corporate bonds and stocks.
Copyright © Andrew Caughey, 2001
The Pulse of Capitalism is published quarterly. Comments may be sent to Pulse Publication, P.O. Box 140, Gibsonia, PA 15044. Telephone: (724) 443-2396
Material may be reprinted with acknowledgement of the source. Economic statistics are revised routinely and may, therefore, differ from one report to another.
Published July 2001