Tuesday, May 24, 2011

You're Sick (don’t stand next to me)

It’s allergy season, and on top of that there’s always something going around that many of us go to painstaking precautions to not get (and for all of our suffering usually end up with the worst strain of it anyway). There are a lot of tools we employ on our mission to stay healthy – we overdose on vitamins and carry around those hand sanitizers that we can strap to our belts and pocket books like they were automatic weapons. Contagion (the spreading of something) in any form is hard to control once it’s out there (think “viral” YouTube video).  
Contagion is not just confined to illness; it also happens in the bigger economy. When the economy has the flu, however, we can’t become immune no matter how many times we wash our hands. The financial crisis of 2008-09 that we all know too well is one such example (look at how our real estate bust spread around the world, whoops). The aftershocks too can have contagion implications for our entire economy – especially when we are still vulnerable (like after having just been sick).  Reports over the last two weeks from several regional Federal Reserve Banks are reminiscent of the potential for “economic" contagion:
  • Last Monday the New York Fed released a figure (collected through a survey of 175 manufacturers in NY state) that suggests production will increase in May over April, but the rate of increased production is slowing.  A smaller positive value in May over April means regional manufacturers believe business is slowing – a potential “caution” signal for the months ahead.
  • Last Thursday the Philadelphia (PA) Fed released a figure that implies businesses in the Philly area also expect less growth in business in May over April.  As with New York, the figure was still positive (albeit barely), meaning business conditions deteriorated significantly in May over April. 
  • Yesterday the Chicago (Illinois) Fed released a figure (an index of 85 national activity indicators) that suggested U.S. businesses did less business overall in April compared to March.  Not good.
  • Today the Richmond (Virginia) Fed reported that manufacturers in the Richmond region are headed for a decline in business in May.  Shipments and new orders are down in May.  Businesses in the area are pessimistic for the outlook over the next few months.      
It does not take an economist to conclude that economic activity is not moving in the right direction this month.  Hopefully this is just a sneeze.  While we can’t individually keep the entire economy healthy (aren’t you ambitious), we can be individually proactive to minimize the seriousness of the illness.  Buying more hand sanitizer, vitamins, and tissues (and preferably getting your international friends to buy products with "value added" in the US [think "made by" vs. "made in"]) is a good start for keeping yourself and the economy from getting too sick.  In other words, being proactive about your health can at least keep a cold from turning into bronchitis (bronchitis = don’t stand in the same room as me).
(Federal Reserve Banks)

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