Posting has been and may continue to be light, however, I wanted to make a few notes on my economic outlook.
I have been less concerned than others with the possibility of a coming double dip and that concern has waned based on recent data.
It does seem to me that much of the factory slowdown was supply chain related.
Monetary policy is not as loose as I would like it to be but let us remember that it is still quite loose as things go.
The marginal return to capital in the US is rising. Put in terms that are more familiar to lay people: rents are going up, the vehicle fleet is aging and computing is entering a new device generation – tablets and the cloud.
All of these things will pull investment forward and as long as monetary policy doesn’t stand in the way, boost economic output.
Moreover, the microdata seems consistent with this. More mulit-family building permits are being filed. Used car prices are rising. Vacancy rates at apartments are dropping.
For those who see this and say yes but what about the rest of the economy. Think of it this way: housing, autos and computing represent stimulus for the rest of the economy. It can be negative stimulus or positive stimulus.
My crystal ball says that they will be adding positive stimulus. My best guess right now is that it will be enough to overcome the negative stimulus of fiscal contraction.
Also, on Europe. If the bank capitalization plan works – and right now I think it will - I still think there is a decent chance that a Europe that declines due to tight money will be a net positive for the United States. Of course, it depends on contagion and other factors but so long as the Euro retains strength I see the primary transmission channels as working in America’s favor.
That is not saying we should wish our European counterparts ill, but simply from a forecasting standpoint that leads me to believe the outlook for the US is still fairly positive.