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