Written by Steven Hansen
This past week I have continued to ponder my friend Lakshman Achuthan’s renewed recession call where he stated:
For the past three months, year-over-year real personal income growth has stayed lower than it was at the start of each of the last ten recessions.
Lakshman cannot explain the real elements from his economic forecasting tools as they are proprietary – and must provide examples from data sets which are in the public sector. Every recession is different, and likely ECRI is seeing weakness across a wide range of their proprietary indicators.
Yet, the problem in using personal income to explain a recession is coming is that there have been several false warnings where a recession did not occur.
In any event, personal income is not a reliable tool by itself to warn a recession is eminent. Earlier this month, one of my favorite forecasting tools (truck transport employment) also showed weakness – but remained far away from the 6 month warning it has provided for recent recessions. I use the zero growth year-over-year for a recession warning.
Using truck transport employment data on its own to warn of a recession is not a good idea as there might be factors which effected truck transport employment disproportionate to the overall economy. And I tend to distrust data before 2000 as the economic dynamics have changed.
It is hard to identify economic sectors gaining traction (improvement in the rate of growth) – and stubbornly a little voice in the back of my head keeps screaming “what does not go up goes down”. I refuse to accept that a healthy economy should continue to grow a such a “moderate” (e.g. crappy, sickly, disappointing) rate if something was not fundamentally wrong.
Yet, this past week the economically intuitive manufacturing subindex of Industrial Production was released. The manufacturing component of IP is growing 5.8% year-over-year (adjusted), and represents one of the strongest segments of the economy. It has a positive growth trend line, and has rebounded from last months decline.
There is no certainty in economics. Statistically, certainty can only come with a significant number of economic cycles under controlled conditions. Even a hundreds cycles are not enough to conclude statistical certainty – and the dynamics and conditions relating to each recession were different.
I continue to take ECRI’s recession call seriously – but I cannot provide at this time any evidence to support a recession is coming.
Other Economic News this Week:
The Econintersect economic forecast for May 2012 shows moderate growth. There was some improvement in the government pulse point, but degradation in some of our transport related pulse points. Overall, the pluses and minuses balanced out.
ECRI has called a recession. Their data looks ahead at least 6 months and the bottom line for them is that a recession is a certainty. The size and depth is unknown but the recession start has been revised to hit around mid-year 2012.
This week ECRI’s WLI index value has been jumping around due to backward revision. The negative values seen in the last few weeks have now disappeared. However, this index is still showing the economy six month from today will be as bad as it is today.
Initial unemployment claims essentially increased from 365,000 (reported last week) to 370,000 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 – fell from 383,500 (reported last week) to 375,000. 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.
Data released this week which contained economically intuitive components (forward looking) were rail movements and the import portion of container imports. Rail movements data this week is still indicating a moderate expansion if one ignores coal. Container Imports are finally growing year-to-date, but the growth is sickly at less than 1.0%.
Weekly Economic Release Scorecard:
April 2012 Sea Container Data Show Struggling Economy
An Open Letter to Mitt Romney
May 2012 Philly Fed Survey Significantly Deteriorated
Leading Economic Indicator Falters in April 2012
JPMorgan Faux Hedges “European Distressed Debt”. Why?
April 2012 Residential Permits Continue to Show Sector Expansion
April 2012 Industrial Production Comes in Strong
Empire State Survey Bounces Back in May 2012
Business Sales and Inventories Cools Somewhat In March 2012
April 2012 CPI Continues to Show Slowing Inflation
Seniors’ Social Security Garnished for Student Debts
China is Adjusting
Poor Showing for Retail Sales in April 2012
When Will We Learn? The Banks Don’t Think We Ever Will, But We Must
Gold And Silver Jewelry Investments
A Tale of Two Recessions: Still not Finished?
Risk in Low-Float Stocks
The Great Debate©: How to Resolve the Euro Crisis
The Week Ahead: Will Housing Help?
Trefis: Week in Review 11 May 2012
Is Consumer Credit Fueling Retail Sales Growth?
Bankruptcies this Week: Ally Financial subsidiary – Residential Capital, LightSquared (fka Sky Terra Communications)