November 2011 Economic Forecast Continues to Show Weakening Growth

Economic weakness continues in Econintersect‘s November 2011 economic forecast but the underlying economic fundamentals remain more positive than negative.

As of 31October2011, there are no major recessionary elements in any of the coincident data.  As detailed in Searching For a Recession, historically accurate recession markers of Industrial Production and Employment remain strong – and well away from recession territory.   However, these are rear window economic views, not forecasts.

The current trend is “less good” – and this trend began in July 2011.   There were indications last month that the “less good” trend was about to end – however weaker data points in the series used to track future consumer demand lead to the continuation of the existing trend.  All other data sets covering business and government were unchanged.

A note of clarification:  “less good” is another way of saying that something shows positive growth but the rate of growth is declining (slowing down).  A analogy to physics:  less good = positive velocity and negative acceleration.  Conversely:  “less bad” means that something shows negative growth but the rate of negative change is lessening.  Thus:  less bad = negative velocity and positive acceleration.

Econintersect acknowledges that ECRI has said a recession is coming.  In a statement to their clients, they stated:

…… that the U.S. economy is indeed tipping into a new recession. And there’s nothing that policy makers can do to head it off.

Econintersect‘s methodology only views one month ahead while ECRI says their indicators look at least 6 months ahead.  Econintersect has great respect for ECRI, yet no recessionary indications are evident in our more limited outlook.   Our employment outlook, which does have a 6 month vision – is degrading and below the level where the 2007 Great Recession began.  On the other hand, it never recovered above recessionary levels either.

On average, the major coincident data points (all of which are at least two months older than this forecast period) remain weakly in expansion territory – and any economic kick in the stomach could result in a true contraction. Econintersect warns that most elements of the economy have NOT recovered to pre-2007 recession levels. If this was prior to WWII, economists would consider the current USA economic state as a depression.

The trend lines of this data are generally flat or trending down. Econintersect uses the coincident data trend lines to validate and adjust its economic model.

Econintersect believes that the New Normal economy has different dynamics than most economic models.

By continuing to back testing its model, this month Econintersect has made a slight adjustment to the transport data set it uses to forecast consumer demand to align it with the actual coincident consumer data.  This realignment was done for the entire index.

This new alignment has not altered any of the trend lines historically – and the most noticeable effect is an increase in the Econintersect Economic Index (EEI) values for the last 3 months (last months graph).  Documentation for this index was in the October 2011 forecast.

Economic Forecast Data

Econintersect’s Economic Index (EEI) is designed to spot Main Street and business economic turning points.

This forecast is based on Econintersect‘s non-monetary based economic index which counts “things” that have shown to be indicative of direction of the economy 30 days in the future. Note that the Econintersect Economic Index is not constructed to mimic GDP (although there are general correlations), but tries to model the economic rate of change seen by business and Main Street.

The red line on the EEI is the 3 month moving average which is at 0.25, while the monthly index is at 0.10. Readings below 0.4 indicate a weak economy, while readings below 0.0 indicate contraction.

Consumer and business behavior (which is the basis of the EEI) either lead or follow old fashion industrial age measures such as GDP.  The current basis of defining a recession start is the date of beginning of contraction of GDP.

Jobs Growth Remain Above Recession Levels

Jobs growth is terrible, and well under the numbers need for our expanding potential workforce.  HOWEVER, that does not make jobs growth recessionary either.

The Econintersect Employment Index is now forecasting an increasingly “less good” jobs creation situation for the next six months.  The projection has not reached a point of actual contraction as of this date, just that we are moving ever closer to that point unless the data trends change.

The EEI is based on economic elements which create jobs. Econintersect’s Jobs index (explanation here) measures the historical dynamics which lead to the creation of jobs.  It measures general factors, but it is not precise (quantitatively) as many specific factors influence the exact timing of hiring. This index should be thought of as a measurement of jobs creation pressures.

At the present time, jobs growth YoY is above the levels forecast by the Econintersect’s Jobs Index. The table below lists the private non-farm payroll forecasts against the actual BLS headline private non-farm payrolls.




July 2011 135,000 173,000
August 2011 145,000 42,000
September 2011 145,000 137,000
October 2011 145,000
November 2011 125,000

Past EEI Forecasts

and in November 2011 private non-farm employment is forecast at 125,000