Monday, September 06, 2010

Mixed Bag of Economic Indicators
Joe El Rady

If you follow this blog or my twitter page, you know that I am not optimistic about the current direction of the US economy. Markets contain more risk today than they did before the crash and several very dangerous doomsday scenarios concerning residential real estate, commercial real estate, consumer spending and European sovereign debt linger ominously. The debt bubble that caused the last crisis has not completely burst, parts of it have re-inflated and much of it has simply shifted from the private to the public sector in several parts of the globe. Nevertheless, with the exception of the European sovereign crisis, which remains more probable than not, the disastrous scenarios that lurk remain somewhat unlikely. Furthermore, economic indicators, while certainly failing to signal healthy economic growth, also fail to signal a double dip recession.

Clearly, US Leading Indicators have slowed and begun to roll over recently. Some of the indicators appear to signal a dangerous turn. Job growth remains anemic, building permits continue to disappoint, money velocity remains dangerously low and, is it any wonder, consumer expectations continue to slump. Nevertheless, average workweeks continue to improve along with vendor performance as well as new orders of capital goods.

US coincident indicators also signal different directions. Real manufacturing and trade sales remain strong, but have worsened. Personal incomes less transfer payments seem to have stabilized, as have payrolls. Industrial production continues to improve (although probably not for strong and sustainable reasons).

The mixed bag of indicators, while certainly failing to foretell a strong recovery, similarly fail to forebode a double dip recession. Again, crisis scenarios do loom that can cause a meltdown. In the absence of one or more of these crises, however, the economy seems to have settled into a stop and go, low growth, flat phase that will continue if crises can be averted.