State of the Union Econ Highlights

"The state of the union is iffy,
As I stand here tonight looking spiffy.
The economy's slow
To get up and go,
And Congress is fiscally cliffy."

"The minimum wage in the nation
Should be tied to the rate of inflation,
So that all may enjoy,
While in private employ,
Relief from the grip of privation."

"America, please hear my sermon:
The Yank should be more like the German,
With apprenticeship skills
That fix our job ills,
As numerous studies determine."

"The number-one US priority
Is the growth of the fact'ry sorority,
So we can bring back
The fam'ly of Mac,
If not all, then at least a minority."

"Of course, I must certainly preface it
As a President these days professes it:
These are policies which,
By taxing the rich,
Will not add a dime to the deficit."

President Barack Obama's latest State of the Union address, the first of his second term, was mostly prosaic, at least in its economic prescriptions.  The poetry came at the end, when the President invoked the victims of gun violence in the House chamber, repeatedly intoning: "They deserve a vote!"  Also, the sight of 102-year-old Desiline Victor, who Mr. Obama cited for her waiting six hours to vote (presumably for him), was enough to make one verklemmt.

Here is the full prepared text of the speech.

A Chicken & Egg Problem

For GDP growth to look handsome,
Manufacturing's got to expand some,
But someone must buy
That expanded supply,
So we've got to expand our demand some.

"Without Demand, Manufacturing Can’t Pump Up Output or Jobs," says The Wall Street Journal's Real Time Economics blog. As much as many, including the White House, have pinned their expansionary hopes on a US manufacturing renaissance, this only works if foreign and domestic demand keeps those factories busy. Right now, both appear to be softening.

Recent factory surveys from the Federal Reserve Banks of New York, Philadelphia, Richmond and Kansas City show more respondents reporting falling orders than expanding. Moreover, "a third-quarter survey done by professional services firm PwC found 67% of major U.S. industrial multinationals said 'lack of demand' was an expected barrier to their company’s growth over the next year. That was the No. 1 choice among a list of obstacles that included energy prices, regulatory pressures and taxes, and was a jump from 48% pointing to a lack of demand in the second quarter."

Third quarter US GDP is set to be announced this morning at 8:30, with the consensus forecast of an expansion at a tepid 1.7% annualized rate. At the moment, the prospect of manufacturing our way to faster growth looks dim.

More Made in the USA

Though more work on the factory line
Is always a positive sign,
Manufacturing's rise
In the US belies
That wages are on the decline.

The headline in The Wall Street Journal reads: Flat US Wages Help Fuel Rebound in Manufacturing," but, looking a little behind the headline, it becomes apparent that the rebound is fueled by a sharp decline in starting wages. Two-tier wage agreements have become a common practice in union factories, with new hires earning $8-10 an hour less than "legacy" workers. Coupled with the strong rise in Chinese manufacturing wages, as well as increases south of the border, this development has led to the migration of factory jobs back to the US, and a 4.3% overall increase since 2010.

So-So Employment Consensus

The employment report's understood
To say the economy could
Adroitly provide ways
To move along sideways,
But not ever get any good.

The ADP Employment Report will be released Wednesday morning at 8:15 and, though hotly anticipated, is not expected to be so hot. As shown in the graph, the disastrous employment losses of 2008-2009 have reversed and begun to recover, but not at a rate that would bring back full employment. The economists' consensus is for a gain of 183,000 jobs in April, down from the 209,000 increase in March. So-so, and trending lower. There is a possible upside surprise, though: Tuesday's better-than-expected ISM manufacturing survey, as well as recent regional surveys, point towards manufacturing job creation exceeding expectations.

Manufacturing Madness

The ISM has a surprise
For all of those pessimist guys:
The data extend
The positive trend
Of the previous few PMIs.

Time To Invest?

Said a broker, in recommendation,
At a client's undue hesitation:
"Throughout time, we deduct,
Sh^t has always been f#cked;
Pray be bold in your risk allocation."

In times like these, after a prolonged economic slump, isolated indicators may offer glimmers of hope; an improving jobs number here, more manufacturing there. And yet, the economy as a whole is not clearly improving. At such times, investors may become paralyzed by the conflicting data, waiting for all the stars to align and thereby missing a rocket launch to the moon. Investors may need the equivalent of a "snap out of it!" delivered with a bracing slap. Here to meet this pressing need is Joshua Brown, the investment advisor and blogger known as the "Reformed Broker". Urging investors to "Get Your Shit Together," Mr. Brown says:

I have no idea when this secular bear market and the attendant economic malaise will truly be over - but I know for a fact that if you're not planning for its end you're going to miss your chance.

Industrialist Obama

"To create better jobs in the shorter view,
Manufacturing needs the support of you,
For to firm up the health
Of our national wealth,
We must build some more cars and export a few."

President Barack Obama, in his State of the Union address on Tuesday night, predicted that manufacturing products for export would turn the US economy around. The President singled out companies such as General Motors and Master Lock as examples of this potential. Such rhetoric made Marketplace reporter Heidi Moore wonder whether we could build enough stuff to fill the financial hole left by crisis-riven banks. After all, the financial sector accounted for one third of US corporate profits before the bubble burst. Responded University of Maryland economics professor Peter Morici:

"We cannot succeed as an economy without a strong manufacturing base." While Wall Street has made a lot of money, Morici says, "It's nothing compared to the wealth generated by labs that come out of manufacturing."