May 01, 2003

Where Is Our Pent-Up Demand?

Where is the pent-up demand that was going to be released by the end of the uncertainty created by the hanging cloud of the War with Iraq that was? It had better show up soon, or I am going to become more pessimistic about economic prospects for the next year or two:

Wall Street Journal: New data suggest the U.S. economy hasn't gained as much momentum since the end of major fighting in Iraq as many economists had hoped.

The Institute for Supply Management said its closely watched monthly index of manufacturing activity fell to 45.4 in April from 46.2 in March. A reading below 50 indicates contraction in the sector. Meanwhile, the U.S. Labor Department said Thursday that the number of new workers filing for unemployment benefits declined by 13,000 to 448,000 in the week ended April 26. But the current level remains consistent with a flat or rising jobless rate, and the Labor Department's four-week moving average of claims, which smoothes out weekly fluctuations, rose to 442,000, the highest level in more than a year.

The two reports "splashed a bucket of cold water on the view that there was a tremendous buildup of pent-up demand" postponed by the conflict with Iraq, says David Rosenberg, an economist at Merrill Lynch & Co...

Posted by DeLong at May 1, 2003 10:09 PM | TrackBack


Brad, I think you'll find the pent-up demand in the same place where Saddam's WMDs are hidden.

Posted by: Bobby on May 2, 2003 06:54 AM

In case you haven't noticed, the states are cancelling projects left and right, freezing spending, hiring, salaries, new projects, etc. Schools are not going to buy a lot of new computers and other equipment when they are in the process of teacher layoffs and class size increases. The financial problems of the states are supressing demand by billions of dollars.

The price of gasoline yo-yos and is taking more money out of people's pockets. The slowdown in 2000 was accompanied by large increases in gasoline prices.

On the tech side, my processor has not yet been brought to its knees by new software, so it is not yet time to upgrade. There is still a glut of used equipment available. Why buy new if it is available at less than 1/4 the price on Ebay?

Posted by: bakho on May 2, 2003 07:27 AM

Yeah, it's a tragedy.

There hasn't been a boom in the three weeks since the fighting ended.

I wonder if the WSJ author is a cousin of Steven Roach. I detect the same analytic mind set at work.

Posted by: Jim Harris on May 2, 2003 09:27 AM

What, precisely, was the consumer supposed to be demanding? I didn't get the memo about this and don't want to be embarassed by not having the item.

Posted by: vachon on May 2, 2003 11:10 AM


Just get out there and spend, darn it! Ahhhhhhhhhhhhhhhhhhhhh.

Posted by: jd on May 2, 2003 12:54 PM

"Where is the pent-up demand that was going to be released by the end of uncertainty? It had better show up soon, or I am going to become more pessimistic about economic prospects for the next year or two."

Demand never faltered during the recession. How does a harder pressed middle class consumer spend more now? Why should industry spend more when demand can easily be met at 74% capacity? Chinese capacity is growing rapidly, and can be used to meet ever more American demand.

Where does the rapid domestic growth come from in coming months? Tax cuts for the wealthy? Good grief.

Posted by: anne on May 2, 2003 01:31 PM

Why was there supposed to be pent-up demand in the first place? This war wasn't ever likely to be more than a hiccup economically. What significant resources were being diverted from unmet domestic demand to fighting a war?

Posted by: CJ Colucci on May 2, 2003 02:26 PM

The only pent up demand is for jobs...

Posted by: Jon H on May 2, 2003 06:12 PM

Actually, military spending has been and will continue to be a stimulus for the domestic economy. The problem is demand is still not high enough to allow for significant GDP growth.

Posted by: lise on May 3, 2003 02:54 PM

Pent-up demand? DEMAND? The only DEMAND I see in this economy is people demanding a way to pay down some of their amazingly high credit-card debt! People around here (silicon valley) are taking out second mortgages so they can make payments on their credit cards and mortgages, "until I get a raise." They have been spending theor home "equity" for the last two years.

I put "equity" in quotes because housing here is starting to fall. The "inventory" on the market has doubled. A friend had his house appraised at $1.2 million (hills above redwood city) but decided he'd better put it on the market for $900K. A month has gone by now without a single offer. A nice 3 bedroom and no one wants it at that price. Imagine that. (That was sarcasm.)

And you're talking about DEMAND? HA!

Posted by: IssuesGuy on May 3, 2003 05:43 PM

Yeah, consumer spending that was underpinned by newfound wealth in the equity markets and consumer debt will bounce back anytime now. I guess Ordinary Joes should just forget about all that unfortunate corporate fraud (I hate the word "malfeasance") and the high-tech bubble and keep plowing all the hard-earned money into the market and spend, spend, spend.

Besides, a thoughtfully tailored policy cocktail of increased defense spending and trickle-down economics is sure to fix what’s wrong...

Posted by: Stephane on May 4, 2003 09:45 PM
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