Re: Who said it isn't a bad economy?

Post #46,271 by neelk 7/21/02 6:35:28 AM Reply	Re: Who said it isn't a bad economy? Don't pay too much attention to the stock markets. I suspect that the stock market is going to stink like ugly on a dog, but the next decade of economic growth is going to be one of the best ever. Why? P/E ratios are still rather high. There's still room for prices to fall another 25% or so, before they fall back to the historical averages. However, I think growth is going to be really good, because labor productivity is growing like gangbusters. The annualized rate of productivity growth for the first 6 months of 2002 is an absolutely insane 7%. This is really good news, because it is a sign that the mid-nineties increase in productivity growth was not a transient phenomenon. Since the rate of productivity growth pretty much controls the long-run rate of economic growth, this means that the economy can potentially still grow quickly. Since stock prices measure the present value of profits, this implies that most economic growth is going to result in increases in real wages rather than stock prices. This is good news for anyone who is either young or poor, since income is a much greater component of wealth for them than stock equity is.
Post #46,327 by tablizer 7/22/02 2:27:58 AM Reply	row!...row!...row!... (* Why? P/E ratios are still rather high. There's still room for prices to fall another 25% or so, before they fall back to the historical averages. ) I thot they were already at their historical average of about 15 to 17. Does anybody know of any websites with long-term graphs or data on such? I do remember a graph back in 1999 where the author predicted gloom and doom based on p/e ratios. I should have kept that. The original may be worth something on ebay these days. ( However, I think growth is going to be really good, because labor productivity is growing like gangbusters. *) Productivity is such a fuzzy concept that I am not really convinced such numbers mean much. Measuring quality or market desirability of something is tough to do over the long run. How do you measure if today's movies are better than those of the 1980's? Or fashion today better than yesteryear's? The US economy depends less and less on making "things", so productivity in the sense of widgets per hour is kind of like nailing jello to a cloud (to barrow an old OO-evidence-is-vauge dig.) Measuring rope and soap productivity change is rather simple. Measuring things like media content and service quality is really a sticky art. Besides, the increased productivity is perhaps because they fired people or pay them less, and the remaining ones work harder to avoid getting fired also. IOW, they are rowing to a faster drum beat. ________________ oop.ismad.com
Post #46,340 by neelk 7/22/02 7:19:17 AM Reply	Re: row!...row!...row!... I thot they were already at their historical average of about 15 to 17. Does anybody know of any websites with long-term graphs or data on such? I do remember a graph back in 1999 where the author predicted gloom and doom based on p/e ratios. I should have kept that. The original may be worth something on ebay these days. The S&P 500 has an average p/e of around 25. My old boss -- Robert Shiller -- has been predicting doom for the stock market since I knew him (1997 or so). Productivity is such a fuzzy concept that I am not really convinced such numbers mean much. Measuring quality or market desirability of something is tough to do over the long run. How do you measure if today's movies are better than those of the 1980's? Or fashion today better than yesteryear's? The US economy depends less and less on making "things", so productivity in the sense of widgets per hour is kind of like nailing jello to a cloud (to barrow an old OO-evidence-is-vauge dig.) Measuring rope and soap productivity change is rather simple. Measuring things like media content and service quality is really a sticky art. Actually, even measuring productivity increases for soap or rope is hard: how do you account for changes in cleaning power or rope strength? Economists try to avoid this problem by measuring productivity indirectly. What they do is look at the total change in the value of the output, and then calculate how much of the output was due shifting capital and labor inputs. The bit that's left over is due to changes in productivity. So an economist's definition of productivity includes improved work conditions, more efficient management, new technology and everything else that isn't directly measured as capital or labor. Since it's measured indirectly, it fluctuates a lot from quarter to quarter, but it's very important because it's "free money" -- it increases the maximum rate the economy can grow without running into the capital or labor shortages that will spark inflation.

Welcome to IWETHEY!