Unfortunately for Treasury Secretary Lew, the world keeps skewing closer and closer to the version suggested by “markets”, moving further and further from the one he and Janet Yellen declare the only valid possibility. The order and transmission of excuses has been entirely predictable, starting right with his “strong dollar.”
1. Dollar doesn’t matter, indicates strong economy relative to the world
2. Dollar matters for oil, but lower oil prices mean stronger consumer
3. Manufacturing slump doesn’t matter, only temporary
4. Manufacturing declines are consumer spending, but only a small part
5. Manufacturing declines are becoming serious, but only from overseas
6. Maybe domestic manufacturing recession too, but the rest of the economy is strong
7. Rest of the economy might not be as strong as thought, but only an “earnings recession.”
8. Maybe full recession, but only a small probability.
9. …
For much of the mainstream, they have been stuck on #6 – begrudgingly acknowledging the “manufacturing recession” but then dismissing it as only 12% of GDP. The services sector is supposed to be the foundation anyway, and there was to convention no indication that manufacturing weakness was anything other than isolated or, dare I write, “contained.” That expectation just didn’t make sense and doesn’t now:
Economists continue to claim that manufacturing just doesn’t matter and that the service economy is more than fine. Setting aside the obvious link between services and goods to begin with (since so many services are dedicated to managing, moving and especially selling goods), it just doesn’t add up; if consumers are freely spending on services then why would they so eschew goods? If it were just a minor slowing in manufacturing (which has spread to our trade partners, no less) it would be far more plausible in that manner, but the global goods economy, which remains the bedrock core association, is already showing up in recession form. Just in America, manufacturing hasn’t hit a speedbump but rather a conspicuous wall.
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