Tuesday, August 16, 2011

US Real Growth Wheels.

What a Performance:
Companies across the United States have a record amount of cash that they have accumulated since the recession ended. They have increased their cash reserves every quarter for more than two years, and businesses in the S&P 500 index had a total of $963.3 billion at the end of March, according to the most recent data from Standard & Poor's. The growing cash hoard has been the result of stronger profits.

Companies have kept costs low by being slow to hire. Revenue, meanwhile, is growing, particularly from overseas customers. For the 460 companies in the S&P 500 that have reported second-quarter results, total earnings are up 12 percent from a year ago. Hence cost cutting measures have resulted profitability of US manufacturing. It’s well clear that US corporate are not inclined to hire manpower and also not inclined to increase productivity. Keeping all these factors how US economy expects that its unemployment rates will come down to below 9% when profitability growth of 12% for the 2nd quarter of US economy is derived on the wheel of less hiring and increased job cuts. The profitability earned via these routes is being deployed to investments avenues other than the real investments which will bring growth to the ailing US economy.

Game Awaited by Analysts:
At the same time US is expected to recover a little bit but that should not be taken that the US economy is growing and its back to pre recession levels. US economy doesn’t need any easy money to be flooded on the streets. They needs job creation. They need money to be generated and flowed from one to another and not getting it accumulated at one corner. They need to have circulation of funds which will finally lead to economic growth and will bring the wheel of US economy to move.

Wall Street Analyst is waiting for the following cues which will again help them to speculate the number games. Slow growth of US economy leads to drop in crude prices. Lower crude prices leads to more savings and less consumption expenditure. Hence consumption numbers will grow in coming weeks hence analysts will use this map as a growth picture. This is not the original economic growth mechanisms. Commodity prices will also come down resulting more savings and more dreaming of consumption. Lower oil prices will also help businesses at every level from manufacturers to transportation companies to electric utilities. But this savings will remain in the pockets and will not be utilized for capacity expansion neither for reduction of unemployment numbers. But yes my dear Wall Street analyst will be able to cook the game of numbers and scale Dow Jones to 12000 levels. Key commodities, such as copper, aluminum, cotton, wheat, corn, soybeans, oats and rye, has fallen; hence more savings in the hands of US consumers and exploitation of expenditure will be spooked so that consumption picks up.

The below image reflects the Exploitation of Borrow and Consume:

But over all these positives speculations one prime thing have been missed off that is the mind set of the US consumers,. The recent doldrums activity of US economy has shaken the faith of the US citizens .This will lead further to less consumption. And the old policy of US economy that is Borrow and Consume is no longer going to work for the growth of the US economy.

Once upon a time in US Economy:

Manufacturing has always been the bedrock of American economic might. Thirty years ago 20 million Americans worked in the sector. Today only 12 million do, and that number is falling by 50,000 a month. As manufacturing has declined, its place has been taken by new ''knowledge'' industries such as finance and IT. But these industries do not create the vast numbers of well-paid jobs that once provided the bedrock of American society. Instead they provide very high paying jobs for relatively few people. This produces the second big long-term change in America's economy - the stagnation in average incomes. US is loosing I term of technical know-how and knowledge. Their quality has dropped and the proof is that China gas emerged as a leader. One cannot blame China if their person has become more knowledgeable and more inclined towards development. US have died due its ego of being the ruler of the world economy. It never thought of the ways of how to repay back the borrowings. While I am writing there are series of questions coming into the mind of me and also of my readers.

• Can America's post-industrial knowledge economy support its global power?

• Can it create millions of well-paid jobs to replace those lost in manufacturing?

• How can the US maintain a high-wage economy without rebuilding manufacturing?

The below image reflect the Industrial production of US economy which is very much clear that growth was hardly striking in the past decade.

But knowledge is free hence one cannot be stooped from procuring the know-how and building world class genius. They only way US can rebuild US manufacturing would be to drive American wages down to the point that they meet Chinese wages as they rise. Man-power resources need to be utilized efficiently by US in order to compete with the emerging nations. What other nations like India China are having is that they are having a huge uninterrupted flow of talents and qualified young manpower. US are lagging very much behind this and no monetary system can fill up this gap of the US economy. US manufacturing has shifted to China taking the advantage of low cost of production but did UD took its own manpower and transplanted them to China .no never. It never happened that way otherwise US unemployment should not have been a nightmare of 9% above. Today US have raised the voice over the valuation of the Yen over the dollar saying yen is manipulating currency. But did any one calculate the dollar over valuation over the yen. US needs to improve its quality of manpower. The door of globalization has increased the competition and its no longer feasible for US economy to dream that’s its manpower is undefeatable.What US needs is to competet and rebuild its manpower quality otherwise it will be too late to amend any thing for US economy.


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