It seems almost brainless to say that the economic conditions seen in April 2011 will be the same in May 2011 – yet this is Econintersect’s May 2011 economic forecast. Weather forecasters have been saying tomorrow’s weather will be the same as today’s, and they are usually correct.
Our current economic cycle has reached a plateau. Movement of goods and materials are now improving less well when compared year-over-year, but they are still gradually improving. You have to move goods to sell goods and goods are still moving.
Econintersect’s Job’s index (explanation here) is currently in a declining cycle – but should recover later this year. This index measures the historical dynamics which lead to the creation of jobs, but it is not precise as too many factors influence the exact timing of hiring.
A good way to look at the current situation is the economy is taking a breather. It is unlikely to be a precursor to some sort of decline. The underlying economy appears to be healing slowly from the kick-in-the-stomach delivered in the recession of 2007-2009. The recovery still has a long way to go.
Econintersect’s Economic Index (EEI) is a month-over-month comparative index measuring improvements across a broad range of forward looking non-monetary economic pulse points which historically correlate to economic activity.
The index this month is saying that literally all pulse points are expected to improve month-over-month. But the underlying pressure that was producing this improvement has not gained for two months.
Part of the reason for this slacking pressure is a comparison to the strong growth seen during this period last year. But there are also indications in some of the pulse points that inflation is eroding the dynamics. There is no indication yet, that government spending cutbacks are effecting this index.
The Econintersect Economic Index is not designed to correlate to GDP – but to quantify the dynamics of the private sector. The EEI itself is also not designed to measure the strength of growth – only the broad range of growth. It could be argued that the transport component of the EEI measures the strength.
The EEI only looks forward one month. Econintersect uses the longer range WLI from ECRI for the six month look ahead. Although the WLI is proprietary, we understand it is based significantly on monetary factors which historically foretell economic activity in the future. The graph above has aligned forecasts of the EEI and WLI.
The WLI foretold a flat to slightly less good economy in May 2011. Its current level implies the business conditions six months from now will be approximately the same or slightly improved compared to today.
For a complete explanation of the EEI, please see the October 2010 forecast.