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.
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.
|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:
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.
|April World Economic Outlook||The outlook for weak growth for first half of year - then strengthening|| |
According to the IMF:
|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:
|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%.
|Surveys||Relatively strong|| |
NFIB Small Business Optimism - according to the NFIB:
|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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