Weekly Economic Release Summary - Soft Economic Growth Continues

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by: Steven Hansen
Summary

There was no significant economic release this past week.

But the ones released this week continued to show soft growth.

In my view, the most significant release this week was the FOMC meeting minutes - and the participants' economic views were all over the map.

The economy is like a river - overall it is flowing downstream. But there are eddies which move counter to the general direction of the river; some sections move faster or slower than the general (average) speed of the river. It is possible by cherry-picking data points to "prove" the economy will collapse or that boom times are here again.

This week, most of the data points to soft growth with little showing an improving economy, and there is also little to indicate that a recession is waiting in the wings - at least not within a reasonable vision window. Much of the data lags real time too much and is ignored. In the end, a forecast is developed. All economic forecasts suffer from the same defect; we expect events seen in the past to repeat in the future. I personally am concerned because this is the New Normal, and history may or may not repeat.

Even the Federal Reserve's FOMC seems confused about forecasting the economy:

Participants continued to view a sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective as the most likely outcomes over the next few years. Underlying economic fundamentals continued to support sustained expansion, and most participants indicated that they did not expect the recent weakness in spending to persist beyond the first quarter. Nevertheless, participants generally expected the growth rate of real GDP this year to step down from the pace seen over 2018 to a rate at or modestly above their estimates of longer-run growth. Participants cited various factors as likely to contribute to the step-down, including slower foreign growth and waning effects of fiscal stimulus. A number of participants judged that economic growth in the remaining quarters of 2019 and in the subsequent couple of years would likely be a little lower, on balance, than they had previously forecast. Reasons cited for these downward revisions included disappointing news on global growth and less of a boost from fiscal policy than had previously been anticipated.

Economic Releases This Past Week

The Econintersect Economic Index for April 2019 insignificantly improved, but remains below the territory associated with normal expansions. Even with this improvement, the question remains whether this long-term downward trend will continue. Note, our index is built on data sets which were not affected by the government shutdown - and it is most likely that other economic forecasts you have seen fudged the missing data.

The following table summarizes the more significant economic releases this past week. For more detailed analysis, please visit our landing page which provides links to our complete analyses.

Economic Release Summary For This Week

Release Potential Economic Impact Comment
February US Census Manufacturing Indicates a soft economy

US Census says manufacturing new orders declined month-over-month. According to the seasonally adjusted data, it was civilian aircraft which caused the decline. The data in this series is noisy, so I would rely on the unadjusted three-month rolling averages which declined.

Remember the headline numbers are not inflation adjusted, and this month's inflation-adjusted year-over-year numbers are in contraction. The rolling averages year-over-year growth remains in positive territory.

April Conference Board Employment Indicates a weakening economy

The Conference Board's Employment Trends Index, which forecasts employment for the next six months declined with the authors saying:

After growing rapidly through most of 2017 and 2018, the Employment Trends Index has been fluctuating around a flat trend in recent months, suggesting that employment growth will continue, but at a slower rate through the summer. Particularly concerning was the decline in the number of workers employed by the Temporary-Help Industry, an important leading indicator and component of the ETI, which declined by one percent in the past three months. The main trends in the US labor market - including growing employment and labor force participation, tightening labor markets and accelerating wages - are likely to continue in 2019, but more modestly.

Econintersect evaluates the year-over-year change of this index (which is different than the headline view), as we do with our own employment index. The year-over-year index growth rate decelerated by 1.2% month-over-month and grew 3.1 % year-over-year. The Econintersect employment index likewise declined a similar amount.

February JOLTS n/a

The predictive elements show that the year-over-year growth rate of unadjusted private non-farm job openings was down relative to last month.

This usually indicates a slowing in the rate of growth of employment.

Coincident Indicators Soft growth Economic indicators that coincide with economic movements are coincident indicators. Coincident indicators by definition do not provide a forward economic view. However, trends are valid until they are no longer valid, making the trend lines on the coincident indicators a forward forecasting tool.

Note that the indices discussed are the last release of that index.

Overall the coincident indices are indicating 1Q2019 growth similar to the GDP growth in 4Q2018.

  • The Philly Fed US Coincident index year-over-year rate of growth marginally declined, but the index remains near average for values seen over the last two years.
  • The Aruoba-Diebold-Scotti business conditions show average business conditions.
  • The rate of growth of the Conference Board Coincident Index is stable with little change in the rate of growth.
  • ECRI's Coincident Index's rate of growth declined and remains below average for the values seen in the last 12 months.
  • The CFNAI rate of growth is below the historical trend rate of growth (zero-line), and its growth rate is slowing.
April World Economic Outlook The outlook for weak growth for first half of year - then strengthening

According to the IMF:

... new World Economic Outlook (WEO) projects a slowdown in growth in 2019 for 70 percent of the world economy. Global growth softened to 3.6 percent in 2018 and is projected to decline further to 3.3 percent in 2019. The downward revision in the growth of 0.2 percentage points for 2019 from the January projection is also broad-based. It reflects negative revisions for several major economies including the euro area, Latin America, the United States, the United Kingdom, Canada, and Australia.

After the weak start, growth is projected to pick up in the second half of 2019. This pickup is supported by significant monetary policy accommodation by major economies, made possible by the absence of inflationary pressures despite growing at near potential.

March Consumer Price Index Little correlation to economic movements

According to the BLS, the Consumer Price Index (CPI-U), year-over-year inflation rate was 1.9 % year-over-year (higher than the reported 1.5% last month). The year-over-year core inflation (excludes energy and food) rate moderated from 2.1% to 2.0% and is at the target set by the Federal Reserve.

Energy's increase was the main reason inflation advanced. Medical cost inflation grew to 2.3 % year-over-year.

Year-over-Year Change CPI-U Index to CPI Core Inflation

20 March 2019 FOMC Meeting Minutes

Says the economy slowed

I suggest everyone read these minutes - they have not been cookies cutter minutes (having little real change between meetings) since the departure of Chair Janet Yellen.

I find it interesting that the markets only seem to care about the federal funds rate, which these minutes indicate that the federal funds rate will remain unchanged as long as the participants' economic forecasts come true. Hey boys and girls, the FOMC views are all over the place, and its complete miss-forecasts of inflation going back well over 10 years tell you that the FOMC is unable to quantify inflation pressures:

Participants noted that the latest readings on overall inflation had been somewhat softer than expected. However, participants observed that these readings largely reflected the effects of earlier declines in crude oil prices and that core inflation remained near 2 percent. Most participants, while seeing inflation pressures as muted, expected the overall rate of inflation to firm somewhat and to be at or near the Committee's longer-run objective of 2 percent over the next few years. Many participants indicated that, while inflation had been close to 2 percent last year, it was noteworthy that it had not shown greater signs of firming in response to strong labor market conditions and rising nominal wage growth, as well as to the short-term upward pressure on prices arising from tariff increases. Low rates of price increases in sectors of the economy that were not cyclically sensitive were cited by a couple of participants as one reason for the recent easing in inflation. A few participants observed that the pickup in productivity growth last year was a welcome development helping to bolster potential output and damp inflationary pressures.

In their discussion of indicators of inflation expectations, participants noted that market-based measures of inflation compensation had risen modestly over the intermeeting period, although they remained low. A couple of participants stressed that recent readings on survey measures of inflation expectations were also still at low levels. Several participants suggested that longer-term inflation expectations could be at levels somewhat below those consistent with the Committee's 2 percent inflation objective and that this might make it more difficult to achieve that objective on a sustained basis.

March Producer Price Index n/a

The Producer Price Index year-over-year inflation increased from 1.9 % to 2.2 %. Energy prices were the major reason for the increase, but core inflation (less energy and food) decreased.

March Import/Export Prices n/a

Year-over-year import prices and export prices grew insignificantly.

The month-over-month price index for fuel imports increased (and non-fuel imports contracted), and the price index for agricultural exports decreased.

Import Oil prices were up 7.3% month-over-month, and export agricultural prices were down 2.3%.

  • With import prices unchanged year-over-year; and
  • export prices up 0.6% year-over-year.
Surveys Relatively strong

NFIB Small Business Optimism - according to the NFIB:

The NFIB Small Business Optimism Index increased 0.1 points to 101.8 in March, a historically strong level and an indication that small businesses continue to power the economy after being briefly shaken by January's government shutdown. Overall, the Index anticipates solid growth, keeping the economy at "full employment" with no signs of a recession in the near term. The Uncertainty Index dropped six points to 79, returning to a more normal level for recent years.

Weekly Rail Counts Definitely not positive news

Rail so far in 2019 has changed from a reflection of a strong economic engine to contraction. Currently, not only are the economic intuitive components of rail in contraction, but also the year-to-date has slipped into contraction.

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