The global economy appears to be running in full throttle.
This from Floyd Norris, [bold highlights mine]
``THROUGHOUT much of the world, businesses are reporting a continuing surge in new orders, providing an indication that economies are growing.
"In most countries, orders received by manufacturing businesses turned up sooner than orders to service businesses. But even service providers are now reporting increases in new business.
"In the United States, most manufacturing companies reported declining orders for 14 consecutive months, ending last May. That was the longest stretch since the early 1980s, and came amid talk of a new Great Depression.
"But since then, the companies have reported rising orders in all but one month, according to surveys by the Institute for Supply Management.
"Service companies did not begin to report rising levels of new business until September. But by March, a higher proportion of companies were reporting gains than at any time since 2005.
"The accompanying charts are based on the surveys, which are conducted in many countries and consolidated by Markit. They are normally shown on a scale of one to 100, with a reading of 50 indicating as many companies are reporting increased orders as are reporting decreased business. But in the charts, they are shown by the amount the figure is over or under 50. A higher level shows more companies are reporting gains.
"Manufacturing was hurt more by the credit crisis than services businesses were, as many companies slashed orders and inventories in an effort to conserve capital. When the recovery started, it appeared that many of the gains reflected buyers beginning to rebuild low inventories. But as it has continued, it looks more and more as if demand is also rising."
In terms of theory, for Austrian economics, manufacturing always precedes an economic recovery. That's because the basis of consumption begins with production.
Quoting C. A. Phillips, T. F. McManus and R. W. Nelson, ``There are many stages of payments which go to make up the gross income but which are not involved in the computation of net income. The larger number of payments is not from consumers to producers, but is made between producers and producers, and tends to cancel out in any computation of net income or of net product value. "In fact, income produced or net product is roughly only about one-third of gross income." (C. A. Phillips, T. F. McManus and R. W. Nelson, Banking and the Business Cycle, Macmillan and Company, 1937, p. 71).
Gerard Jackson elaborates [all bold highlights mine],
``What matters is production without which there can be no consumption. They also understood the role of capital in raising real wage rates. It is important to recognise this fact if a proper understanding of wage rate movements is to be acquired. What matters is not an increase in wages but an increase in wage rates — meaning the gross wage which includes payroll taxes, health insurance, etc. — within a full-employment context, i.e., one in which there is work for all those able and willing to labour.
This from Floyd Norris, [bold highlights mine]
``THROUGHOUT much of the world, businesses are reporting a continuing surge in new orders, providing an indication that economies are growing.
"In most countries, orders received by manufacturing businesses turned up sooner than orders to service businesses. But even service providers are now reporting increases in new business.
"In the United States, most manufacturing companies reported declining orders for 14 consecutive months, ending last May. That was the longest stretch since the early 1980s, and came amid talk of a new Great Depression.
"But since then, the companies have reported rising orders in all but one month, according to surveys by the Institute for Supply Management.
"Service companies did not begin to report rising levels of new business until September. But by March, a higher proportion of companies were reporting gains than at any time since 2005.
"The accompanying charts are based on the surveys, which are conducted in many countries and consolidated by Markit. They are normally shown on a scale of one to 100, with a reading of 50 indicating as many companies are reporting increased orders as are reporting decreased business. But in the charts, they are shown by the amount the figure is over or under 50. A higher level shows more companies are reporting gains.
"Manufacturing was hurt more by the credit crisis than services businesses were, as many companies slashed orders and inventories in an effort to conserve capital. When the recovery started, it appeared that many of the gains reflected buyers beginning to rebuild low inventories. But as it has continued, it looks more and more as if demand is also rising."
In terms of theory, for Austrian economics, manufacturing always precedes an economic recovery. That's because the basis of consumption begins with production.
Quoting C. A. Phillips, T. F. McManus and R. W. Nelson, ``There are many stages of payments which go to make up the gross income but which are not involved in the computation of net income. The larger number of payments is not from consumers to producers, but is made between producers and producers, and tends to cancel out in any computation of net income or of net product value. "In fact, income produced or net product is roughly only about one-third of gross income." (C. A. Phillips, T. F. McManus and R. W. Nelson, Banking and the Business Cycle, Macmillan and Company, 1937, p. 71).
Gerard Jackson elaborates [all bold highlights mine],
``What matters is production without which there can be no consumption. They also understood the role of capital in raising real wage rates. It is important to recognise this fact if a proper understanding of wage rate movements is to be acquired. What matters is not an increase in wages but an increase in wage rates — meaning the gross wage which includes payroll taxes, health insurance, etc. — within a full-employment context, i.e., one in which there is work for all those able and willing to labour.
``In this situation wage rates can only continue to increase so long as the process of capital accumulation continues. In other words, it is the accumulation of capital that raises the "intensity of demand" (real wage rates) for labour. (Mountifort Longfield, Lectures on Political Economy, Richard Milliken and Son, 1834, p.195, and Nassau W. Senior, An Outline of the Science of Political Economy, Augustus M. Kelley, 1965, pp. 69-72, 170-730)."
And we seem to be witnessing this "economic turnaround" playing out exactly in accordance to the Austrian theory.
Of course, for us, today's recovery is only a symptom of brewing bubble as discussed in Is The Recovery In Global Manufacturing A Symptom Of The Next Boom Bust Cycle?
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