Tuesday, June 21, 2011

Things that can go right with the economy

It’s true, all kinds of things can still go wrong. But there are some things that can go right as well, that will lead to an improving economy:
— Vehicle production in July is scheduled to jump 23.8% month-over-month, which could generate a new view that the soft patch in the economy is ending.

— The U.S. debt ceiling issue could be resolved in the next few weeks, and material debt reduction over the next decade agreed upon.

— New stimulus could be drummed up by the White House and the Fed, including a payroll tax cut for businesses.

— Gasoline prices could dive lower in the wake of increased Saudi production, release from the Strategic Petroleum Reserve and the departure of Col. Gadhafi from power in Libya, dampening inflation and providing more money for consumers to spend over the summer.

— Finally, regulators could agree to limit bank capital requirements to 2% to 2.5%, rather than the 3% expected at present, which would relieve pressure on shares of big banks that dominate the market's benchmark indexes.

Now digging more into the details on auto production, here are some more pieces of the puzzle worth plugging into your outlook matrix.

Wards Auto analysis shows that U.S. vehicle production should surge to 9.6 million in the third quarter, from 8.1 million in the second quarter. That's a 19.1% increase, or 101.5% annualized. The step up in production is scheduled to begin in July, with production expected to hit 10.4 million, vs. 8.4 million in June.

This expected surge in vehicle production will reflect a make-up for production lost to supply-chain disruption from the Japanese earthquake. It's not just autos, either. Analysts point out that the Beige Book last week mentioned Japan supply disruptions 25 times. And keep in mind that these disruptions occurred around the world, from Europe to South Asia.
I’ve already seen gasoline prices as low as $3.64 per gallon, down from a high (around here) of about $4.09. And crude oil futures have been bouncing around $92 or $93 a barrel, and the signs are that they will go lower still. That alone will free up income for people and enable that all-important uptick in consumer demand that will get the economy circulating again.


  1. Yeah, a friend of mine, a long time ago, called me an "eternal optimist".

  2. Dreamer.

    Closet Communist, I'd say.

  3. All for free enterprise, free markets, and the "payroll tax cut for businesses". But glad also for some of the public safety nets, like unemployment compensation. Very helpful about two years ago. Glad to be back to work.