This is the time of the month that
begins to prepare its economic forecast for August 2012. Sitting
here working on the forecast and listening to CNBC in the
background - the images in my head are one of an economic roller
coaster with an abyss in the distance.
This past week has seen many economic ups and downs:
- consumer sentiment worsens (bad)
- initial unemployment claims down significantly (
- Spain debt financing at post-euro high, all while further
evidence Europe / UK in recession (bad)
- European Central Bank President Mario Draghi says he will
save the euro
- soft existing home sales and pending home sales (bad)
- durable goods new orders strong
- GDP at 1.5% (I don't know if it is good or bad - the data is
mixed and the BEA reset the baseline).
The USA economy is running so close to zero that the question on
everyone's mind is not if, but when, the next recession will start.
This creates a mindset (at least for me), to look extra hard for
recessionary evidence in the coincident data. Every piece of bad
data gets magnified, while good news is shrunk out of
I have no special crystal ball to share about the timing of any
upcoming recession. All I can say is the data we have seen for June
(which is subject to revision) shows an expanding economy. Going
with the big four economic elements the NBER considers other than
GDP - the latest data was improving.
Month-over-Month Growth Personal Income less transfer payments
(blue line), Employment (red line), Industrial Production (green
line), Business Sales (orange line) (click to enlarge images):
Personal income was in a 3 month improving trend, employment has
been growing for two months, all while industrial production has
been up and down but, overall, expanding for the last 3 months. The
final data is not in on noisy business sales for June - but this
too seems will likely be positive based on advance data.
I keep getting a flashback to Econ 101, and business and
economic cycles. I keep wondering how another recession could be
upon us without a typical expansion cycle - where was the boom part
of the cycle? Was I asleep? The Great Recession it seems was
artificially terminated by extra-ordinary fiscal and monetary
moves, and the extra-ordinary measures may be expiring before its
As GDP was released, and the Real (inflation adjusted) growth
came in at 1.5%, I flashed back to the
on the effects of stimulus on GDP.
Doug Short's and my
analysis on GDP
shows that if you exclude inventory build, Real GDP would be less
than 1.2%. If you use the CBO's estimate of the high effect of
stimulus on GDP, that means unstimulated GDP was only 0.3%. Even
without considering the winding down of stimulus effects, GDP has
now been declining for six months. Add to this the potential
effects of the expanding Eurocrisis, and it is hard to see the
bottom of this downward trend.
I am a passenger on this roller coaster ride who hopes there is
My weekly economic summary has been posted
in my instablog
. Here I have summarized the week's economic releases, and give
some thoughts on the Eurocrisis.
I have no positions in any stocks mentioned, and no plans to
initiate any positions within the next 72 hours.
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