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Tag: economic growth

What to watch as we wait for the double-dip recession

Thunder Dolphin Roller Coaster by Freakazoid via FlickrDouble dip recession

The economy has stop plummeting.  I don’t even have to read the figures.  I know because pundits are worrying about a double-dip.

Will something something catastrophic happen that flips the economy down another slide?

People are worried about the amount of money the European governments are taking out of the economy.
People are worried about developers defaulting on commercial buildings.
People are worried about house prices flat lining.
Where will jobs and business opportunities come from?  Economies and jobs grow in a good year at 3%.  And jobs follow businesses?  How long will the recession take to clear?
More, to the point, where will growth happen?   Which sectors should energetic young men and women watch and prepare to join?

Will the double dip recession happen?

Not everyone thinks a double dip recession will happen.  Prieur du Plessis of Seeking Alpha is one and here is his excellent summary.

But in the summary is the very reason why a double dip recession might happen.

Companies are making money hand over fist. And hanging on to it.  Consumers are spending less.  Demand somewhere is dropping.

How did companies make the money?  And why aren’t they reinvesting it in productive activity?

du Plessis believes capital is like a dam.  Fill up the dam with money and it will find a productive activity to invest in.

Maybe.  I’ll watch.

What am I watching as we wait for a double dip recession?

While we wait to see if the weasel goes pop, I am watching the capital stacked up in western companies.

It’s supposed to signal productive activity.   Where will future productivity lie?

That is the question.

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3 questions to structure your filter of economic data

All over the internet yesterday, people were chattering about filters.

What sense do you make of the world? And the 100 million dollar question, what is your understanding worth to anyone else?

Scary thought?

Well, here is an easier one!

Which indicators do you use to judge the health of the economy?

Last night, Forbes suggested that men wear brighter ties when the economy is on the up.  And wear duller ties when it is going down.  And the dull ties came out before Lehman crashed!

What do geeks wear when the going is good?  What do Kiwis wear?   They seem to wear black forever.

How do you judge the state of the economy?

The Forbes indicators tell us about confidence in the economy. What else should we be looking at?

When I lived in Zimbabwe, a leading economist advocated that we look at the state of people’s lawns.  Lawns are expensive and tiresome to look after.  Someone who is ‘staying’ will look after their lawn.  Someone who is ‘leaving’ will let it go.  Drive down the street and you get a fair idea of what people intend to do.

So if guys’ ties tell us how chirpy we feel, and where the economy might be headed, what tells us what people are going to do?

Which behaviors do you look out for and which leading indicators suggest the behavior may increase (or decrease)?

And what deceives us? What is just another dazzling bubble?

I remember another economist being overly impressed by the growth of flash chain fast food outlets in Harare.   I was stunned because I saw fast food outlets as a sign of non-investment activity.  When we have money that we have ‘won’ rather than ‘made’, we tend to waste it.  It’s a sure sign we are in a bubble.

Another working economist reckoned that he could judge the viability of a working farm in a glance as he drove up.  If there were more vehicles than drivers, the farm was going under.   The motivation was a little different, but once again money was being spent on decoration rather than functionality.

British political scientist, Parkinson described this phenomenon in other terms.  When organizations build monuments to themselves, they are on the way down.

Others may call this ‘chi’ – or lack of it.  We can feel the focus and vigor seeping away.

Which warning signs do you notice?

Three questions for your economics filter, then.

  • In your world, what tells you when the economy is on the way up, and does the same indicator tell you when the economy is on the way down?
  • In your world, which behaviors are so important to the future health of the economy that it would be good to have advance warning? What might that leading indicator be?
  • In your world, which behaviors suggest our eye-is-off-the-ball?  Or, that we are playing with funny money – or stolen goods – or money not made in the productive economy?

What else should I be looking at to structure a useful, working filter of the economy?

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