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Tuesday, September 01, 2009


still a depression, but watching industrial production

barry eichengreen and kevin o'rourke update their charts to note the nascent divergence of industrial production from the early 1930s trend.

This is a sharp divergence from experience in the Great Depression, when the decline in industrial production continued fully for three years. The question now is whether final demand for this increased production will materialise or whether consumer spending, especially in the US, will remain weak, causing the increase in production to go into inventories, leading firms to cut back subsequently, and resulting in a double dip recession.

interestingly, of all the country breakdowns of individual nation industrial production, only the united states is faring better than in the great depression to date. this is very likely due to the reversal of its role in this crisis, as the erstwhile great current account surplus nation (a role now shared by china, japan and germany) to the world's great current account deficit nation and provider of excess demand.

but end demand does not appear to be resuscitating as of yet, except where dramatically subsidized from the public checkbook, nor is retail credit in any expanding as banks continue to reduce balance sheet. as noted by pragmatic capitalist, retail data are still indicating contraction.

Are investors beginning to notice the weekly negative trends in retail? ICSC came in at -0.5% on the week and -0.7% year over year. Redbook came in -4.1%. The strong negative trend in consumer spending cannot be ignored forever. At some point this is going to take a grip on the economy and the stock market. This is a very bad sign for back to school sales….

this bloomberg piece citing the opinions of paul tudor jones and clarium capital's kevin harrington roughly corroborate the view that there's clearly a cyclical inventory restocking afoot, but it may be one limited by the trailing off of fiscal stimulus spending as the year runs out.

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