Friday, February 5, 2010

A Recovery That’s Factory-Built and Gaining Speed

New York Times article "A Recovery That’s Factory-Built and Gaining Speed" (February 5th, 2010) points out that increased manufacturing output may be a sign of quick economic recovery:
The sharpness of the rebound, reflected in the indexes created by the Institute for Supply Management in the United States, and recreated in many other countries by Markit, could indicate that the American economy is not in line for another slow recovery
Likely, this is a sign of recovery. An interesting economic possibility, however, is that increased manufacturing output is actually a sign that the economy is headed only further into recession. We imagine a world in which individuals can either consume with their income or invest it. If the economy is only headed further down, they want to invest less, meaning they must consume more, until captial has depreciated to its new steady state, as depicted below (click to enlarge). Investment trends would need to be analyzed in order to dismiss this possibility.

No comments:

Post a Comment