Written by Steven Hansen
Many economic data points recently are coming in stronger than I expected. Case in point was construction spending which came in Monday – especially considering the previous month’s crappy data.
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Most of the inflation adjusted construction spending data over the last 12 months has been in negative territory. But starting in 2018, the trend lines began to improve even though inflation adjusted growth was still in negative territory (green line on graph below which shows year-over-year inflation adjusted growth).
The blue line in the above graph is the headline construction spending, whilst the red line is inflation adjusted values.
Construction spending is a bellwhether for recessions as projects are put on hold as the economy weakens. But generally construction spending’s movement is coincident with GDP. Even though construction is not exactly going gangbusters the improving trend is notable.
Another higher-than-I expected data point this week was trade. Looking at inflation adjusted data – both imports and exports have had an improving trend line since the beginning of 2016. What is notable from this data point is that July was the beginning of the trade wars – and even the affects on agriculture exports were minimal.
And all the four horsemen which the NBER uses to determine recessions are showing improving trend lines since the beginning of 2016. [Note that industrial production was on a declining trend line from the second half of 2014 through the first quarter of 2015]
Even though I believed the economy was going to slow in the second half of 2018, there is almost no evidence (yet) to support this belief. Even the leading indicators where/are pointing to a slowing in the second half of the year. But the key data keeps trending up.
Other Economic News this Week:
The Econintersect Economic Index for September 2018 shows the improvement cycle continues and remains well into territory associated with normal expansions. Our index retreated somewhat from last month’s three and a half year high. Overall the forecast decline this month is insignificant. What is concerning is the mixed trend lines that are being seen – which usually happens when there is an overall reversal in trends.
