Tomorrow We Dance To Freedom






Irrational Optimism Fuels U.S. Durable-Goods Orders Rise

Posted on:

Transitory effects from the paltry short-term fiscal stimulus are rippling through the U.S. economy producing blips that cloud the view of forecasts that focus on longer-term economic horizons. With federal programs like "Cash-for-Clunkers", and the "First-Time Home Buyer Tax Credit" pumping much needed cash into the economy is it any wonder the economic picture at close range is taking on a rose colored hue.

This is spurring a ratcheting up in business confidence that translates into increased capital goods spending. Generally speaking the driver for this irrational optimism originates from the contagion of maintaining a lie in unrealistic future economic & corporate forecasts. These improving forecasts defy reality; the plummeting corporate revenue declines that have been widespread across all industries.

Case in point - even though reported revenue figures for various airlines (carriers) has been falling, executives of these companies who are pressured like all top level executives to provide guidance that inspires confidence in their stock have been parroting a common theme. It's a theme echoed by the majority of firms - next quarter will be better. In fact, this irrational exuberance has propelled business capital purchases for durable goods up 4.9% in July 2009. Of this increase non-military aircraft and parts increased 107.2% while motor vehicles (the ending "Cash-for-Clunkers" program helped move vehicles higher) and parts rose 0.9%.

When we examine the non-military aircraft booking numbers we find that a single company; The Boeing Company, was the major contributor towards rising non-military aircraft and parts by such a startling percentage. Upon even closer examination we find that most of this increase was attributed to Boeing doubling its aircraft bookings in July 2009 compared to a drop experienced in June 2009. Yes it's hard to believe but major air carriers who continue to see their revenue fall off a cliff have actually bought into the government, other businesses, and their own carefully scripted economic propaganda about an improving economy. So what do they do, they order more planes even though logic should dictate otherwise.

This rosy contagion is not limited to business executives but has also spread to consumers. This is clearly reflected in the Consumer Confidence reading of 54.1 for August 2009 compared with a reading in July of 47.4.

Analysts should now be asking themselves one overriding question. Is this behavioral inspired general belief in an improving economy that is buttressed by a paltry short-term oriented fiscal stimulus and other temporary supports to a structurally broken economy enough to inspire a meaningful sustained long-term economic recovery? When we take out the 18.4% increase in transportation goods from the durable goods figures we're left with only a 0.8% rise in orders.

Also, are the structural remedies required to achieve a balance in power between Labor & Capital in place? Clearly this problem has been ignored given that not a peep has been uttered for weeks about "The Employee Free Choice Act" by the media parrots, labor unions, or our bought out government representatives.

Additionally, has the federal government invested in a transformational long-term infrastructure, green industries, advanced electrical grid, and solar collection field focused upon creating & maintaining (employment numbers) high wage jobs into the foreseeable future? We're all acutely aware of the answer to this question - absolutely not, no major long-term investment (fiscal stimulus) to the tune of $2 - $3 trillion dollars has been or will be made in our expiring economy. Keep in mind this money was already wasted on padding the purses and wallets of big bank executives.

If the answer to these questions was a resounding "No" then what we're seeing is a lot of deluded people wanting to latch hold of any hope during the bleakest of times. Even if business investment increases by 1% this alone (these irrationally based decisions) will not sustain an economy dependent upon general consumption by the majority of global consumers. But business investment increases on an order of 1% may not even materialize given that bookings for non-defense type capital goods that exclude aircraft (typically a proxy for future business investment) fell 0.3% after rising 3.6% in the prior month.

More importantly, short-term fiscal stimuli props will never jump-start an economic engine that is sputtering because it is running on 'income' fumes. Continuous unperturbed income up flows from a majority of global citizens who are confident and secure in receiving decent wages over the long haul is the only high-octane 'income' fuel that will keep the global economic engine humming for many decades.