Economic Banana More or Less Confirmed as Depression

From the WSJ, Sharper Drop Is Forecast for Factory Production:

U.S. manufacturing output is expected to decline 12% this year, a much sharper pullback than the 8% predicted just three months ago and a sign of how the downturn is hitting factories particularly hard, according to a new report.

"Everything has gone to rock-bottom levels that I thought was unattainable," said Daniel Meckstroth, chief economist at the Manufacturers Alliance/MAPI, a public-policy group in Arlington, Va., that published the report.

This downward revision is late coming. As the Government has been reporting and this blog has been one of the few noting in print, wholesale trade figures are closer to a 20% year on year ("yoy") decline, and the dollar volume of this trade is enormous, around one trillion dollars monthly. It is pretty much the whole economy minus such personal services as legal fees, haircuts, etc.

If the conventional differentiation between a recession and a depression is a 10% drop in output, then a manufacturing depression is essentially confirmed. It is not the Great Depression, but if one considers all the outsourced manufacturing to Asia and look at Asia's truly enormous manufacturing/export declines, it is not so clear that this event and the 1929-32 events are all that different. Of course, there is much greater material wealth now, and non-cyclical endeavors such as health care are a much greater part of the economy now. With retail down about 10% yoy, though, I'm inclined to call this downturn a Depression.

Unlike the mid-1970s near-Depression that was caused by an oil embargo and quadrupling of oil prices, or the severe but less severe 1981-2 recession that was deliberately caused by Paul Volcker using very high interest rates and slow money supply growth, this downturn was self-inflicted but not deliberately so and is thus closer to the 1929-32 crash than the more recent severe economic downturns.

Depressions end; this one may soon end, but Depressions are like major hurricanes or earthquakes. Each is its own event. This one is/was a Katrina, hitting our major industries of finance and auto manufacturing with devastating force. Simply knowing that Katrina was passing, or even that the flooding had peaked, did not change the devastation that was wrought on New Orleans.

Live, and invest, accordingly.

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