With A Continuing Weak Economy, Will QE Ever End?

by: Steven Hansen

There are "dots" appearing in economic releases confirming a growth cycle, and one particularly interesting "dot" because it is not sending strong signals on growth.

Graph of Real Imports of Goods & Services

Imports have been historically a good indicator of economic growth - growing in non-recessionary periods, with the growth stalling or contracting during recessions. Now look at the flat growth since the beginning of 2012. But it looks like imports have decided to grow again beginning in 2013.

One headwind in imports can be attributed to a decline in the value of oil imports (all the following charts are from the BEA).

But the other elements of imports show an almost imperceptible growth - but growth nonetheless.

Although most elements of imports have returned to their pre-recession levels, over the last couple of years they are showing an economy only marginally expanding. Two of the import elements (industrial supplies and capital goods) are forward-looking elements - and they appear flatter than a pancake. Typically a forward-looking element would be an imported item which is used in the domestic manufacturing cycle.

The cutoff in the BEA data (used in the graphs above) is through 2Q2013, so this data is lagging. We also have monthly data from US Census on trade - now updated through August (which is one month less lagging). Here we have a continued degradation in imports - and there is very little growth year-over-year.

Inflation Adjusted Year-over-Year - Change Goods Export (blue line), Goods Import less Oil (red line), and Goods Import with Oil (yellow line)

For a more coincident look at imports, container counts have a reasonable correlation to non-petroleum imports - and whilst the import data has improved in 3Q2013, it is not a significant improvement.

Unadjusted Year-over-Year Change in Container Counts - Ports of Los Angeles and Long Beach Combined - Imports (red line) and Exports (blue bars)

To sum it up, my view is that the economy rate of growth may be improving, but it is the difference between a slow snail and a fast snail. There is little sign that the economy is taking off - and we can only wonder if the Fed will ever stop Quantitative Easing. Even though they have transparently advised the basic elements which they are watching, you must suspect the process to end QE is very subjective and not as objective as portrayed.

And this time the economy just does not want to signal it is clear of the recessionary black hole as it has done after past recessions.

My normal weekly roundup is in my instablog where the strong rail data is discussed.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.