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Chicago PMI -- another V-sign





The Chicago Purchasing Managers' Index has risen rather dramatically this past year, joining the rapidly growing list of signs and symptoms of a V-shaped recovery. I've been arguing for a long time that this recovery would be V-shaped, that once the financial markets got back on their feet and confidence started returning, the recovery would feed on itself--a virtuous cycle, if you will.

It's very hard to derail a process such as this. I know that the recovery skeptics point to all sorts of dreadful things that await us as the housing market experiences another wave of defaults and commercial real estate struggles with high vacancy rates and its own wave of defaults, and as the nation struggles with high unemployment and trillion-dollar deficits. But all of those become less dreadful if the underlying economy is picking up. And in any event, defaults don't kill growth, they merely transfer wealth. Housing price declines don't kill growth either; rather, they allow new owners to buy a home they otherwise couldn't afford. High unemployment doesn't kill growth, it is a manifestation of slow or weak growth: an effect, not a cause. Deficits don't kill growth either, but they do slow down the recovery since they are caused mainly by massive government transfer payments which don't produce much in the way of productive activity, if any.

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