Steven Hansen's  Instablog

This week really started bad for the markets - most believed that the wheels were falling off of the Euro cart, and the good ole USA was about to be impacted. Then Draghi opened his mouth, and the wheel magically no longer was falling off of the cart.

The markets rallied, and then US GDP came in higher than the low expectations of almost no growth - and a market feeding frenzy ensued. Are economic things really better?

Focus:

• Europe is in bad shape. Forget the ups and downs, and focus on the impact of whatever changes the Eurozone makes - all will be economically negative. They have doomed themselves to a recession - and they are already there. Nothing Draghi or anyone else can do to make things better right now. They can only mitigate part of the downward trajectory.
• The USA economy right now is not as bad as perceived (although for lack of a scientific word I will just say it sucks). Many of the trends are negative, but many are flat or slightly positive. A recession is always coming - but the data is not saying it will occur in the next year YET. Can Europe drag the USA into a recession - absolutely, if their lack of mitigating actions continue.

The Econintersect economic forecast for July 2012 shows continues to show moderate growth. Overall, trend lines seem to be stable even with the fireworks in Europe, and emotionally cannot help thinking this is the calm before the storm. There are no recession flags showing in any of the indicators Econintersect follows which have been shown to be economically intuitive. There is no whiff of recession in the hard data - even though certain surveys are at recession levels.

ECRI stated in September 2011 a recession was coming, and now says a recession is already underway. The size and depth is unknown. A positive result is this pronouncement has caused much debate in economic cyberspace.

The ECRI WLI index value remains in negative territory - but this week is again "less bad". The index is indicating the economy six month from today will be slightly worse than it is today. As shown on the graph below, this is not the first time since the end of the Great Recession that the WLI has been in negative territory, however the improvement from the troughs has been growing less good.

(click to enlarge)

Initial unemployment claims decreased from 386,000 (reported last week) to 353,000 this week. Last week's decline appears to have been an anomaly as some pundits suggested. Historically, claims exceeding 400,000 per week usually occur when employment gains are less than the workforce growth, resulting in an increasing unemployment rate (background here and here). The real gauge - the 4 week moving average - declined from 375,500 (reported last week) to 367,250. 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.

(click to enlarge)

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

• Rail movements (where the economic intuitive components continue to be indicating a moderately expanding economy - however this past weeks data was very marginal);
• Both GDP and CFNAI data are rear view looks at the economy.

All other data released this week does not have enough historical correlation to the economy to be considered intuitive.

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Bankruptcy this Week: None

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