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Weekly Review: Economy Still Not Operating On All Cylinders

For over a month now, the markets have been creeping higher and higher. On what news? Perceived improvement in the USA economy? The reality is that nothing has changed - it is the lack of negative reports. Pundits believed the bottom was ready to fall out - and it did not.

Yet, there is little evidence the economy has turned any corner. The key lagging indicator - unemployment or employment - has been flat for a real long time (seven months to over one year depending on the measure being used). What is happening is the economy is basically growing slightly above the population growth rate.

The USA economy is not out of the woods. The growth rate is too low.

The Econintersect economic forecast for August 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 growth index value remains in negative territory - but this week is 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.

Current ECRI WLI Growth Index

/images/z weekly_indexes.PNG

Initial unemployment claims rose from 361,000 (reported last week) to 366,000 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 (background here and here). The real gauge - the 4 week moving average - declined from 368,250 (reported last week) to 363,750. 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 - 2010 (blue line), 2011 (red line), 2012 (green line)

/images/z unemployment.PNG

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.
  • Industrial Production manufacturing sub-component which showed less good growth but remained within its improvement channel it has been in since the first half of 2011.
  • Although I do not believe retail sales are intuitive, it deserves a mention as there was a marginal improvement - which may be evidence of no near term recession.

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

Weekly Economic Release Scorecard:

Olympics, Economies, and The Next American President
Facebook Falls Below $20! More to Come?
Who Pays for Obamacare?
Wen Jiabao: China Growth is Under Pressure, or Not
Facebook Down More than 55% in 3 Months
Rail Week Ending 11August2012: No Gain Year-over-Year
August 2012 Philly Fed Survey Is Less Bad
11August2012 Unemployment Claims Update: 4 Week Moving Average Improves
Residential Building Has Strong Growth in July 2012
CMI Weighted Composite Continues Plunge
CPI Data: Where is the Credibility?
Investing in the Mars Success
Brazil: Stimulus and Asset Sales
Of Star Bursts and Star Dust
Industrial Production Continues to Show Expansion In July 2012
July 2012 CPI Shows Offsetting Inflationary Dynamics
Empire State Survey Shows Manufacturing Contraction in August 2012
Municipal Bond Defaults Are Common
Autos and the U.S. Energy Strategy
Looking at the IMF Paper: High Inflation is Bad
Standard Chartered: The Cost of Doing Business
Australia Housing: Bubbles, Affordability and Shortages
Mars: NASA Releases New Images
Business Inventories Situation Nasty in June 2012
Droid App Released for Census, BLS and BEA Data
July 2012 Producer Price Index Declines to 0.5% Year-over-Year
Retail Sales Better in July 2012
July 2012 Small Business: Index Declines to a 2012 Low
Krugman Discovers the Culture of Fraud
Mars: The Way You've Never Seen It Before
Don't Bet the Farm on New Home Sales Data
Health Care Costs are Concentrated on a Few Patients
Average Gasoline Price Rises $0.077 Week Ending 13August2012
Libor Criminal Probe: Former Barclay Trader Reported to Cooperate
Commodity Fetishes and the Cultural Adaptive Rate
Global Macro Strategy Review
Is There Increasing Regional Inequality in China?
Buy Silver, the Dumb Money Hates It
Japan: GDP Growth Slows Unexpectedly
Do Short-Selling Bans Work During Market Declines?
Insider Trading 10 August 2012: Facebook Director Buying
The Week Ahead: Keeping Investing and Politics Sorted Out
Dealing with Territorial Claims in a Thawing Arctic
The Attempt to Revamp Healthcare Adminitration and Lower Costs with Reform
Bill Black, Bethany McLean Discuss No Prosecution of Goldman Sachs
The Great Debate©: Is Ryan a Good VP Choice?
Trefis: Highlights Week Ending 10 August 2012
Economic Bandaids and False Gods
Economics: How Form Defeated Function
Forexpros Weekly Wrap-Up 10 August 2012
Export and Import Prices Continue to Deflate in July 2012

Bankrupcies this Week: NewPage,

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