The latest data for US Durable and Capital Goods Orders, came in strong, showing, again, that the demands of speculators, and perennial forecasts of catastrophists, for recession, are unlikely to be met. Durable goods orders for May came in up 0.7%, month on month, and capital goods orders (essentially replacement for wear and tear and accumulation of fixed capital), rose by 0.5%.
The figure for durable goods has been up for seven of the last eight months. In March its was up 0.7%, in April 0.4%, and this month's 0.7% massively exceeded the estimated increase of just 0.1%. Durable goods orders for transportation rose 0.8% month on month, reflecting the fact that the world is just starting to get moving again, after all of the idiotic lockdowns start to get removed.
Inventories were also up again, now having risen for sixteen consecutive months. As I have set out previously, increases in inventories can be good or bad, depending on why they increased. On the whole, this increase is good. It signifies as its prolonged trend suggests that businesses are increasing their stocks of equipment and materials in anticipation of continued increases in demand for their products.
Part, however, of the reason can be bad. Firstly, because of supply chain bottle necks, as seen with the lack of microchips for use in car production, firms are delayed in turning over their capital, as they have to wait for shipments of components. Secondly, whilst globalisation had probably gone as far as it could, for the time being, in bringing about a further international division of labour, other political developments were essentially turning it back. Brexit is a good example, but NATO imperialism's economic war against Russia and China is another, as it introduces a range of trade frictions, and encouragement for firms to move from a Just In Time regime, to a Just In Case, regime, in which they hold larger inventories, to protect against supply disruptions. That means both a reduction in productivity causing the value of commodities to rise, as well as slowing the rate of turnover of capital, bringing a fall in the annual rate of profit.
The strength of durable and capital goods orders is another indication that all of the claims about imminent recession amount to nothing more than wishful thinking. On the one hand, the greedy speculators are hoping for a recession, so that the central banks will stop tightening liquidity, and their asset prices might rise again. On the other hand, the catastrophists are hoping for a recession, because their reactionary pessimism is a reflection of their view that capitalism is in its death agony, and in some condition of permanent crisis or stagnation, with the next recession always imminent, because, in their crude determinist model, the basis of socialism is that workers will only rise up to replace it on the back of such crises, rather than that the working-class will utilise capitalist development to strengthen its position, to take control of the productive forces created by capitalism, and, thereby, surpass it, and build Socialism on the foundations it has already created.
The conditions, today, are much like those in 2008, when similar siren calls were being made. But, as I pointed out back then, those calls were unjustified. Employment and economic activity continued to rise into 2008, and created conditions for workers to become more confident, and rebuild their organisation, and start to demand pay rises. As I pointed out at the time, it was not economic crisis that led to the global financial crisis, but economic strength. That economic strength, increasing the demand for capital and labour caused wages to rise, which squeezed profits, which together with increased demand for capital caused interest rates to rise. It was those rising rates that sparked the financial crash, and today, rising rates have already caused the NASDAQ to fall by 30%, and the S&P by 25%, not to mention the collapse of purely speculative assets such as Bitcoin.
The strong durable and capital goods orders are only part of the jigsaw, as we will see economic activity increase in China, as it is forced to abandon its ridiculous zero-COVID strategy. As the Chinese economy ramps up, it will drag the rest of the global economy with it. That will give another twist to the global demand for primary products. But, we are also seeing wages rise across the globe, so far only from the natural process of supply and demand, where labour shortages have caused forms to compete for available labour by having to sharply increase wages, and bonuses in specific sectors, but which is now set to see big pay rises for millions of workers, as they organise industrial action. Non-state businesses are likely to quickly settle with their workers, as happened in the similar period of the 1950's and 60's, and as with tanker drivers back in 2008, as they see their ability to pay, being a worthwhile cost, as they look at rising demand for their goods and services. Workers employed by the state may not fare so well, but the very fact that they can more easily move to jobs in the non-state sector will eventually pressure governments to concede there too.
Those rising wages will be the next leg in raising aggregate demand, as workers use those wages to fund consumption, which, in turn, will lead to businesses seeking to increase output so as not to lose market share to competitors.
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