Manufacturing continues to lead U.S. recovery”, said the April ISM manufacturing survey that measures overall manufacturing activity. "The PMI registered 54.8 percent, an increase of 1.4 percentage points from March’s reading of 53.4 percent, indicating expansion in the manufacturing sector for the 33rd consecutive month. Sixteen of the 18 industries reflected overall growth in April, and the New Orders, Production and Employment Indexes all increased, indicating growth at faster rates than in March.”

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Graph: Econoday

Why is this a surprise? Even exports continued to expand, showing the weak dollar is keeping U.S. products competitive. “Other details show a slight destocking in inventories which is welcome and points to the need for future orders in order to replenish inventories,” said Econoday. “Prices paid do remain elevated which is a negative for manufacturers. But overall, this report points to accelerating conditions and perhaps new leadership for the data.” Manufacturers cannot keep up with demand, in other words.”

The U.S. economy continues to confound its critics, whether those who believe we sink or swim with Europe, or are tied too closely to the Chinese economy, or those who believe austerity is the only answer. But European austerity measures in particular are a failure, as Nobelist Paul Krugman has been saying in columns, such as “Death of a Fairy Tale”, while our Fed continues to provide stimulus with record low interest rates.

So those who criticize economic stimulus measures aren’t looking at the real economy. With retail sales soaring, particularly motor vehicle sales (thanks to Obama’s Detroit auto bailout), the consumer has again been growing the economy. Retail sales are growing at 5 percent plus annually, just like in pre-recession, boom years. Core components excluding gasoline and auto sales showed widespread strength.  Standouts included building materials & garden equipment, furniture & home furnishings, electronics & appliances, and clothing, which tells us home buying might be next on their list.   Declines were seen in miscellaneous store retailers and in health & personal care.

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Graph: Econoday

Then what are we to make of the weak GDP numbers, with just a 2.2 percent growth rate, compared to 2011 Q4’s 3 percent? It was due to a huge drop in government spending, thanks to Republicans continued assault on state and local government spending. Wisconsin is just the most obvious example, but the red states with Republican legislatures continue to downsize their governments, restrict or abolish collective bargaining rights, while cutting taxes to their wealthiest and corporations.

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Graph: Econoday

This is why job formation has slowed of late. ADP estimates that April private payrolls will rise by only 119,000 in what would be significant monthly slowing vs. a revised 201,000 in March. This compares to Bureau of Labor Statistics’ estimates of 121,000 for private payrolls and 120,000 for total payrolls in Friday’s upcoming unemployment report for April. But remember that the BLS’s JOLTS report shows 3.5million job openings, and growing.

So it’s really Republicans’ efforts to downsize government spending that is holding back more job formation. For instance, 300,000 teachers have lost their jobs in the downsizing of state and local governments, a crime that puts us even further behind other countries’ educational achievements, according to Paul Krugman.

“What should we do to help America’s young? Basically, the opposite of what Mr. Romney and his friends want. We should be expanding student aid, not slashing it. And we should reverse the de facto austerity policies that are holding back the U.S. economy — the unprecedented cutbacks at the state and local level, which have been hitting education especially hard.”

Harlan Green © 2012