Impact of Real Interest Rates on Retail and Manufacturing

In a recent post I referred to data that suggests manufacturing output has been growing much slower than retail sales volumes since 2004. The data suggests that the consumer sectors are booming, while productive sectors are shrinking, which would be in line with a shortening of the production structure due to aggressive injections of fiduciary media into the economy (for more see Russell’s post “Further Thoughts on ABCT“).

From 1996 through 2000, the trend was the opposite of this – the production structure was lengthening while retail sales was virtually flat. Data here and here (unfortunately not available in excel, only PDF).

I have been arguing for a long time that real interest rates must be higher to encourage saving and capital investment and help long-term sustained growth of the South African productive base. Here is an interview where I communicate this view. Did you know that the US industrial revolution was borne from a monetary environment of real interest rates somewhere between 5-10%?

It is therefore no surprise that as real interest rates have been driven lower since the late 1990s by continued and aggressive SARB (and Federal Reserve) money printing, that retail is booming while manufacturing is shrinking.

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About Chris Becker

Chris Becker is Market Strategist and Economist at ETM Analytics. Becker is Co-Founder of the Mises Institute South Africa. Visit his personal blog chrislbecker.com. Follow him on twitter @chrislbecker.
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