There is no certainty in economic forecasting. Although Econintersect believes there is historical evidence to support its view, many unique elements can come into play. For instance, how much do unusual events (such as quantitative easing or the international intervention in the oil markets) alter short term economic performance?
This coming month the biggies are the absence of QE2 and the USA debt limits. Although it is not believed they will effect the private economy, all have the potential to explode causing all sorts of collateral economic damage.
It's Jobs Stupid ...
Does positive economic growth create jobs (the chicken) or do jobs create economic growth (the egg)? Econintersect believes in an advanced economy, it is the chicken. The economy itself builds jobs. Jobs growth follows solid economic performance.
The current economy continues to run well under pre-recession levels. Econintersect's Employment Index is based on economic elements which create jobs. Econintersect's Job's index (explanation here) was at a cycle low in June.
This index measures the historical dynamics which lead to the creation of jobs, but it is not precise as many factors influence the exact timing of hiring. This index should be thought of as a measurement of jobs creation pressures.
At this point, the jobs growth YoY is well above Econintersect's Index. May 2011 employment data was weak and only 2/3rds of Econintersect's forecast. We believe this same weakness will continue for the coming months until the YoY BLS non-farm private jobs growth returns to Econintersect's Index's year-over-year growth rate.
The index projects July 2011 non-farm private jobs growth is projected at 135,000 (up from last months forecast of 130,000) – however it could be as low as 70,000.
The economy in July ...
With stimulus wearing off, the economy is continuing to look weak as the core issues which were not solved are being exposed. This is the first economic expansion which is business driven with the consumer not adding significantly.
The consumer contribution to economic growth is anemic.
The Achilles Heel in Econintersect's model is inflation – the exact economic tipping point is not well defined. It appears that the inflationary pressures building over the last 6 months are reversing – and will not have a negative effect Econintersect's economic model.
The transport component of Econintersect's Economic Index (EEI) is clearly rolling over.
The transports counts are coming in clearly "less good." Econintersect believes the non-monetary transport counts are the canary in the economy. Transport counts, although less good – still remain solid across the board. The transport counts are lethargic and in most cases remain below pre-recession levels.
It should be pointed out that transports and the main index itself softened last year about the same time and at that time many warned of a possible double dip recession which did not occur. Is a mid year swoon a new seasonal effect?
Econintersect's forecast is that July 2011 will be less good than June 2011.
For a complete explanation of the EEI, please see the October 2010 forecast.