The automatic budget cuts that commenced on Friday, March 1, may threaten economic growth, but recession risk remains low, based on the latest set of economic and financial numbers. Asked about the potential macro fallout from the sequester, House Speaker John Boehner yesterday responded: "I don't know whether it's going to hurt the economy or not. I don't think anyone quite understands how the sequester is really going to work." Whether you agree or not, what we do know is that the economy's forward momentum remains intact--according to a broad survey of the current data set.
After last week's updates, we now have all 14 indicators for December's profile of The Capital Spectator's Economic Trend Index (CS-ETI) and Economic Momentum Index (CS-EMI). In addition, January's review now includes 13 of 14 indicators and February's profile reflects six out of 14. The general result: the trend still looks encouraging, as the table below shows. Yes, there's plenty of debate about how the future releases will compare. What else is new? But based on a broad set of published numbers so far, there's still no smoking gun for arguing that the economy's has started contracting in the recent past.
For some historical perspective, here's how the 14 indicators in the table above compare when measured in a diffusion index (CS-ETI) and in terms of the median monthly percentage change (CS-EMI). In both cases, the recent readings are well above the critical levels that are associated with the arrival of recessions.
Although February's profile is still a work in progress, the incoming data so far has remained encouraging. Meanwhile, the full set of December numbers, and the nearly compete profile for January, present a strong case for arguing that the NBER won't be declaring either month as the start of a new recession when the group updates its business cycle database.
The upbeat news about the current state of the economy comes as a shock to some analysts. But the numbers have been dropping clues all along that the economy's bias for modest growth has been persistent. What's more, conservative projections of the near term showed few signs of trouble either. (For example, see my macro reviews on December 10 and January 8.)
The future's as hazy as ever, perhaps more so these days. But the fact that a broad set of economic and financial indicators continues to trend positive is a convincing sign that recession risk remains low, according to what we know today. That will change eventually, and perhaps soon. When that day comes, and we have convincing signs that the cycle has stumbled, you'll read about it here. For now, the available numbers suggest that the economy is still expanding.