Sunday, July 8, 2012

As the Global Economy says "Slow Down", California says "Speed Up"

Last week, a measure of U.S. manufacturing activity from the Institute for Supply Management (ISM) declined to 49.7 in June, from 53.5 in May – the surprising drop below 50 suggests contraction.  Also, the U.S. Department of Labor reported that for June: 1) payrolls growth was lower than expected at 80,000, 2) unemployment remained at 8.2% and 3) the labor force participation rate (people either working or looking for work - 16 years and older) remains near a multi-decade low at 63.8% (see chart 2 of PDF).  Additionally, International Monetary Fund (IMF) Managing Director Christine Lagarde said, "in the last few months, the global outlook has been more worrying for Europe, the United States and large emerging markets," and its growth forecasts are likely to be lowered.  Against this backdrop, California legislators approved financing for an initial segment of a dedicated high-speed rail line connecting Los Angeles and San Francisco (the project will improve some existing rail lines, cost about $68 billion and support 220 mile-per-hour trains).

With significant economic commentary focusing on “bumping along the bottom” and potential “free-fall” deceleration, moving out of this cycle requires many things including job creation and a vision the future. Debates about the effectiveness of government in stimulating growth and the value of large-scale public works efforts will continue – but the high-speed rail project should: 1) create jobs, 2) provide some of the “vision thing” and 3) potentially have a positive environmental impact. Economic successes and failures will continue as we move beyond the financial crisis.  Let’s move beyond some of the debates and create some jobs!

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