Economic Outlook Take Another Look

Economic Outlook

Take another look at the list of "Leading Economic Indicators" from the lesson. Which indicators do you think are the best indicators of the future health of the economy? Explain.

Manufacturers' new orders are a significant indicator of the future health of the economy because they indicate levels of demand and future levels of production and employment for manufacturing industries. Additionally, there is a direct relationship between orders and production and job creation. The Institute of Supply Management's manufacturing index compiled monthly, making the numbers timely. One can get frequent updates on the state of production / consumerism in the nation so as to be able to track increases or decreases before they become widespread. The only drawback to this indicator is that determining when orders become production is not an exact science. The Associated Press, in an article entitled, Manufacturer's orders an den economic indicator' reminds that reader that imprecision results from the fact that current orders are filled from existing inventories and unfilled orders are more closely linked to future production. There is a bit of guessing involved in the prediction process.

2. Research ONE of these leading indicators. Summarize what it tells us about the future.

According to the U.S. Department of Commerce; Bureau of the Census, the ISM index is provided monthly. The new orders information represents the dollar value of additional orders received each month for delivery during that month or later. The data on orders are broken down for durable and nondurable industries and for market categories of various consumer goods, capital goods, defense products, and materials such as primary metals, fabricated metals, electric generating equipment, nonelectrical machinery, information processing equipment, and transportation equipment, including civilian and military aircraft and ships.

The data in this report provide information on the strength of demand, from both domestic and foreign sources, for U.S. manufactured durable goods. Rising orders, shipments, and unfilled orders suggest demand is strengthening, which will likely result in increasing production and employment, while falling orders, shipments, and unfilled orders suggest the opposite. Data in this release also provides information on the current and likely future pace of business investment in new equipment.

3. This exercise demonstrated that the change in the real GDP growth rate in Q4 2008 was -6.3%. Using what you have learned in the previous modules, if you were an advisor to President Obama, what types of policies would you advocate to stimulate the economy?

I would focus on energy transformation and advice President Obama, that such a policy would create jobs and increase manufacturing. Increases in manufacturing reveal benefits early, one can track the benefit at all stages and report the benefits to the public quickly. According to a statement released by the Center for American Progress, "solar panels don't install themselves. Wind turbines don't manufacture themselves. Homes and buildings don't retrofit or weatherize themselves. In our industrial society, trees don't even PLANT themselves, anymore. Real people must do all of that work." The public wants a quick fix, they want to start hearing that the economy is doing better and a focus on manufacturing will accomplish this. Additionally, there has been increasing pressure on the White House to focuses on alternative energy sources. Such a policy would gain favor with democratic and liberal environmentalists.

4. Do you consider your views to be more aligned with a classical or Keynesian approach to economic thinking? Explain. (There is no right or wrong answer). See module 1 for resources if needed.

My views on alternative energy and climate economics is closely tied to monetarist ways of thinking about economics. Monetarism is mostly associated with Milton Friedman who worked within the Keynesian framework of economics. According to Michael Hoexeter's article on climate policy, the economics of climate change focus on setting a price for carbon. Keynesian economics advocates active policy responses by the public sector and enables economists to appreciate the vital role of government investment and leadership in the area of climate change. The alternative energy policy mentioned in number 3., above focuses on governmental policy designed to enact climate change. Further, in the are of climate change, government policy that focuses on setting the price for carbon, carbon taxation and fees can encourage the public sector's involvement in alternative energy as a method of avoiding fees and saving money