An Actual Good Green Shoot, as Opposed to a Less Bad One

Many data points have been cited as green shoots since they are simply "less bad". For example, if earnings continue to decline, but at a lower rate, this has been cited as a positive or green shoot. Well, one data point that is actually positive is the New Orders minus Inventories (NO-I) data point. Argus Research notes:

• During June, the NO-I jumped to a reading of 18.4, bringing the second-quarter average sharply into positive territory (at 16.7).

Source: Argus Research & Charles Schwab ($)

• The New Orders minus Inventory Index...has offered the most-promising indication of an economic trough.

• This barometer accurately identified the troughs in 1990-91 and 2001 recessions.

Comments

[Moon Kil Woong:]

As you can see the NO-I gave a false reading before giving a correct reading before the trough. As for 2001, considering it was largely papered over by the government letting banks start hiding their losses off balance sheet and what not, I am hesitant to call it a very good indicator of anything other than the fact that indeed, lying and loosening the economic spigot can help paper over problems and stimulate massive bubbles even if there is no real economic or jobs growth to speak of.

On that note, it is no wonder why the Fed and Treasury are scratching their head this time. They lied (check) and losened the money supply (check). They even paid off all their financial friends (check Republican and Democrat).

On that note, I would dare to venture that there is not a lot more they can do to make things much worse for us in the future. But I could always be wrong about that. They could always socialize more American industries, move towards protectionism, make the dollar drop 50% more, install price and wage controls, illegalize owning gold, and close the banks to prevent a run on them. We know they won't do the last thing. After all, why do that when they learned how to make it out of thin air now?

Sorry for the cynicism, I get cranky when someone tells me to mow the lawn and I find nothing but dead grass and no green shoots. Not even weeds.

Jul 09 06:25 AM

[AndrewBaker:]

There are no green shoots: I've said this ad nauseum. There are just lies about things not getting worse, when they are. And inflation is the intention of the government, both here and in other countries, in order to inflate away the massive debts that abound and are being made worse by quantititive easing. And that means that you and I and all the ordinary people will lose value in their savings because whilst the numbers may be higher, the value will be less. It's no good 'phoning your broker to be told your stock account is worth $10,000,000 if it costs $1,000,000 for the 'phone call!

Jul 09 08:28 AM

[onebir:]

So was it an increase in new orders - indicating an increase in demand (ie a real green shoot)? Or was it a fall in inventories - evidence of further destocking, which (short-term) would be actually be negative for GDP?

The NO-I correlation with GDP growth does look reasonable, but answers to these questions would help with interpretation...

Jul 09 09:43 AM