Monday, October 3, 2011

Confused Keynesians Scratch Heads at Accelerating ISM Factory Index

The Keynesian econometric trend followers are confused, once again, as the trend changes in their face. The clueless trend followers expected a decline. Bloomberg writes:

U.S. manufacturing unexpectedly accelerated in September as production picked up, easing concern of a slump in the industry that led the economic recovery.

The Institute for Supply Management’s factory index climbed to 51.6 last month from 50.6 in August, the Tempe, Arizona-based group’s data today. A level of 50 is the dividing line between growth and contraction. Economists forecast the measure to fall to 50.5, according to the median projection in a Bloomberg News survey.
These upside surprises will continue as the Fed floods the economy with new money that will create a new artificial boom. The even bigger surprise will be how quickly price inflation picks up from here. Which means that Richard Fisher, Dallas Federal Reserve Bank president, doesn't have a clue.

He told CNBC this morning that U.S. inflation will drop towards 2 percent. The Consumer Price Index , which includes food and energy prices, is currently at 3.8 percent on an annualized basis.

1 comment:

  1. I'm on board with most of everything Robert writes, though I'm curious about his opinions on the credit market and its implications on prices

    Of course Fed money printing is overtly inflationary, but isn't most of this extra money just sitting in excess reserves?

    Although the money supply has been increasing significantly, surely it requires credit expansion for this newly created money to ripple through the economy? But since banks are contracting credit in order to capitalise themselves, surely the picture is slightly more complicated? (and possibly deflationary in the short-term)

    N.B. as to the long term, I would assume it's inflationary regardless