Registered Investment Adviser Caleb Lawrence
The major averages enter the final hour with large losses on little real news though the war of words over the debt ceiling limit and North Korea heated up again following another missile launch and detonation of a suspected Hydrogen Bomb over the Labor Day weekend.
There are a number of minor economic reports today. The Institute for Supply Management regional New York Index fell 6.2 points in October to 56.6 despite a nearly 19-point jump in the employment component. Factory Orders dropped 3.3% in July erasing the prior months sizable gain, on a large fall in durable goods orders. This report marks the 3rd decline in the last 4-months for factory orders.
Much ink has been spilled in the post bust period about the lack of lending, loss of productivity gains and declines in real wages particularly for those in the lower income quintiles. While the discussion of the inherently deflationary aspects of credit busts is by and large studiously avoided. The latest explanation comes in the form of too much corporate power leading to significant increases in product markups, speculation in lieu of investment, while automation and outsourcing depressed real wages even as executive management saw their compensation boom by leaps and bounds. Once again at the risk of stating the obvious, lack of income leads to reduced demand, end user demand or consumer spending makes up about 70% of economic activity. Consumers substituted debt for income and kept the party going until late 2007. After the bust and Great Financial Crisis, the Fed slashed rates to near zero and flooded the economy with trillions in stimulus encouraging reckless speculation and another set of new and improved asset bubbles. With demand weak, incomes still struggling and debt saturation most everywhere you look the results should be fairly obvious, along with the likely outcome.