Recession seems to be on every ones mind, the Fed is pulled on whether to fight recession or inflation. Supply side shocks give Fed governors ulcer’s for this specific reason. To accurately portray the current situation we are in a growth recession, because our output is increasing along with an increase of unemployment. Sounds odd, however numbers don’t lie, and the BEA analysis show just that. Inventories have fallen and consumption has risen through the month of May. Why is every one predicting impending doom, Yellen stated that consumer confidence had cratered, and that tax rebates have fueled the economy. Which could be true, and if so how do we know that we have entered a recession. When the tax rebates end then a drop in consumption will be a good sign of recession, prior to this drop in consumption an increase in inventories would be an indicator. Recessions in the United States are demand phenomena’s because our economy relies so heavily on consumption.
Asian economies are more tied to export growth; however the U.S. economy has a strict correlation to consumer spending. Another important fact that relates to the Fx market is that U.S. export corporations have posted record profits, while International export corporations have posted profit decreases. The decrease in international corporation profit can be attributed to their attempt to hold market share. They have not increased prices even though their product has become more expensive relative to U.S. produced goods. U.S. export corporations have enjoyed the increased profit margin and greater market share. The decrease of the dollar has made U.S. corporations more competitive on the international market. In short the economic slow down that has weighed on the dollar, has improved the profitability of our most efficient sector the export sector. The export sector produces 25% of the U.S. output with only 9% of the employment. The reason that net exports are negative is that we import an enormous number. We have entered a growth recession, but not everyone loses in a recession.