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The Economy Seems To Be Improving Behind The Scenes

My instablog posts in October have always included the following paragraph.

The Econintersect economic forecast for October 2013 again improved and it appears an improving cycle has begun. There is no indication the cycle is particularly strong, as our concern remains that consumers are spending a historically high amount of their income, and the rate of gain on the points we watch are not very strong.

I am just starting work on the November forecast and I always start with estimating the answer the analytical process will yield. As an engineer, it has been beaten into me that a good engineer knows the answer before he/she begins to calculate.

I believe the forecast will improve - because it is a relative forecast based on the situation in the previous month. The in general is showing subtle gains. Most do not understand that rail is likely one of the best real time tools we have in understanding the economy.

Rail moves crude materials which will appear on consumer shelves several months in the future. Rail moves containers and truck trailers which will be on consumer shelves one to two months in the future. Rail moves crude and processed materials to ports. So consider these extracts from my weekly analysis:

  • Four week rolling average rate of growth (compared with the average one year ago) is accelerating, and is better than the 4 week rolling average one year ago;
  • 13 week rolling average rate of growth (compared with the average one year ago) is accelerating, and better than the 13 week rolling average one year ago;
  • 52 week rolling average rate of growth (compared with the average one year ago) is accelerating, and better than the 52 week rolling average one year ago.
  • This is the 12th week of improving data.

The ECRI WLI growth index value has been weakly in positive territory for over four months - but in a noticeable improvement trend. The index is indicating the economy six month from today will be slightly better than it is today.

Current ECRI WLI Growth Index

Initial unemployment claims went from 358,000 (reported last week) to 350,000 this week. Historically, claims exceeding 400,000 per week usually occur when employment gains are less than the workforce growth, resulting in an increasing unemployment rate.

The real gauge - the 4 week moving average - degraded from 336,500 (reported last week) to 348,250. Because of the noise (week-to-week movements from abnormal events AND the backward revisions to previous weeks releases), the 4-week average remains the reliable gauge.

Weekly Initial Unemployment Claims - 4 Week Average - Seasonally Adjusted - 2011 (red line), 2012 (green line), 2013 (blue line)

Bankruptcies this Week: Molecular Testing

Data released this week which contained economically intuitive components (forward looking) were:

All other data released this week either does not have enough historical correlation to the economy to be considered intuitive, or is simply a coincident indicator to the economy.

All of my weekly analysis of economic releases [can be seen here]

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.