Written by Steven Hansen
There is good reason to keep your eyes on imports into the USA as imports correlate well with GDP. This week the December trade data was released (delayed by the government shutdown), and showed the economy does have life. On the other hand, BLS employment showed the lowest growth of any month since September 2017.
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As can be visualized from the graph below, trend lines of imports and GDP have reasonable correlation.
Imports of goods headlines were reported up month-over-month. Econintersect analysis shows unadjusted goods (not including services) growth accelerated 0.3 % month-over-month (unadjusted data) – up 3.4 % year-over-year (up 3.9 % year-over-year inflation adjusted as imports are deflating). However, the rate of growth 3 month trend is decelerating (rate of change of growth declined).
Keeping your eye on imports provides several months of data in advance of the release of GDP.
The question is whether December’s import numbers are the beginning of a new trend, or was this data point an outlier. If I were a betting man, there are too many trend lines showing a slowing economy. And trends continue until they do not. So my bet is that this data point is an outlier.
But still, this import improvement comes during ongoing “trade wars” which many pundits predicted a slowing of trade (note that my position when Trump announced the Chinese tariffs was that the tariffs were too small to have any significant affect).
There are interesting statistics for 2018 trade data
- the net trade deficit in goods and services were the highest since 2008 – half of the 2018 growth came from Chinese goods
- the trade deficit in goods reached all-time highs (hat tip Statista)
You will find more infographics at Statista
Economic Releases This Past Week
The Econintersect Economic Index for March 2019 insignificantly declined, and remains below territory associated with normal expansions. The question remains whether this downward trend will continue. Note, our index is built on data sets which were not affected by the government shutdown – and it is most likely that other recent economic forecasts you have seen fudged the missing data. A forecast with fudged data is simply a guesstimate.
The following table summarizes the more significant economic releases this past week. For more detailed analysis – please visit our landing page which provides links to our complete analyses.
| Release | Potential Economic Impact | Comment | ||||||||||||||||||||
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December Construction Spending | confirms a slowing economy | The headlines say construction slowed month-over-month. Our analysis shows the rolling averages declined – and last month’s data was revised down. Also note that inflation is grabbing hold, and the inflation adjusted numbers are in contraction..
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| December New Home Sales | slowing home sales are not a good predictor of a slowing economy | The headlines say new home sales improved but remained in contraction. Median and average sales prices improved – but the backlog of unsold homes grew. This month the backward revisions were sometimes significantly downward. No matter how this data is spun – yah cannot ignore that it is contracting year-over-year.
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| February ADP Employment | ??? | ADP is not a good predictor of BLS employment – but ADP shows non-farm private employment grew 183,000 (near expectations consensus – and not a bad number anyway). The authors state:
Not to sure which school of economics the author’s attended – but the monthly data wobbles and I analyze using a 3 month rolling average. This average shows the February data was strong and the same averaged growth as seen in the last 6 months.
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| December International Trade | uncertain | I pay a lot of attention to movement of goods. Economic growth correlates well with imports – but unfortunately we are learning about December’s data very late. The good news is that imports were relatively strong looking at the December data alone – although the previous bad data has caused the rolling averages to continue to decline. As the data wobbles from month-to-month – the rolling averages are the correct way to view this data set.
The bad news is that the monthly data for exports was in contraction year-over-year in December – and it is likely the rolling averages for exports will go into contraction next month. There are a variety of reasons for the poor exports but the two top contenders are the slowing of the global economy and the strong dollar. | ||||||||||||||||||||
| February Beige Book | slowing trend continues | The consolidated economic report from the 12 Federal Reserve Districts (Beige Book) stated “ten Districts reporting slight-to-moderate growth, and Philadelphia and St. Louis reporting flat economic conditions“. The previous report stated “Economic activity increased in most of the U.S., with eight of twelve Federal Reserve Districts reporting modest to moderate growth“. Seems like the rate of growth was not as good as last month. After reading the narrative, one gets the feeling of a slightly slowing economy. | ||||||||||||||||||||
| 4Q2018 Productivity and Costs | higher productivity should lead to economic expansion | A simple summary of the headlines for this release is that costs and productivity rose around the same amount in 4Q2018. The overall view this quarter is that productivity is up 1.9% from the same quarter one year ago, while unit costs are up 1.0%. | ||||||||||||||||||||
| January Consumer Credit | n/a | The headlines say consumer credit rate of annual growth was unchanged relative to last month. Unadjusted Consumer Credit Outstanding
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| February BLS Employment | indicating a slowing economy? | Seasonally adjusted non-farm payrolls increased only 20,000 headlining a pretty ugly report and well under expectations.
The way I look at this jobs report is that last month was outrageously good and this month was outrageously bad. The year-to-date employment growth is about average seen this century – but worse than last year. Year-to-date unadjusted employment growth is 183,000 people below the pace of last year.
The establishment and household surveys seem to have come from different universes. The household survey shrunk the workforce causing lower unemployment. Many use employment data to validate the strength of the economy – and if you do, you might think the economy hit a wall. I would not get excited about this poor data – but if it happens again next month, then employment is sending a message. | ||||||||||||||||||||
| December Housing Permits and Completions | slowing economy on spending | The headline residential building permits improved and construction completions improved relative to last month. But we keep our eyes on the rolling averages which also improved. Still, residential housing is on a long term slowing trend.
The backward revisions this month were significant especially for construction completions. The nature of this industry normally has large variations from month to month (mostly due to weather) so the rolling averages are the best way to view this series. Overall, 2018 permits and completions were higher than 2017. We consider this report better than last month – but because of all the backward revisions it is hard to understand if this really is true. | ||||||||||||||||||||
| Surveys | showing an improving economy | ISM and Markit Services – Both services surveys are in expansion – and improved this month. This is a much stronger report than last month. | ||||||||||||||||||||
| Weekly Rail Counts | Definitely not positive news | Rail so far in 2019 has changed from a reflection of a strong economic engine to no growth. Currently, not only are the economic intuitive components of rail in contraction, but the year-to-date has slipped into contraction |
This week the data is mostly showing a slowing economy – but still there is little to indicate that a recession is waiting in the wings.
Links To All Of Our Analysis This Past Week
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