Econintersect Forecast: Improving Conditions in January 2012

Econintersect‘s January 2012 economic index shows underlying economic fundamentals have improved. The forecast remains for weak but with slowly improving economic growth – January’s growth is projected to be better better than December’s.

As of 31 December 2011, there are no major recessionary elements in any of the coincident data. Historically accurate recession markers of Industrial Production and Employment remain strong – and well away from recession territory. 

Economic downturns have been signaled watching the manufacturing portion only of Industrial Production.  Manufacturing year-over-year growth normally is trending “less good” going into a recession.  This index is above year-over-year growth levels associated with past recessions. As a caveat, this index is revised moderately for at least six months after first issued.

Jobs growth is terrible, and well under the numbers need for our expanding potential workforce. HOWEVER, that does not make jobs growth recessionary either. Jobs growth remains well above levels that historically signal recessions. However, this index too is moderately to significantly modified for many months after issuance.

However, these are rear window economic views, not forecasts.

Econintersect’s current forecast based on the index’s three month moving average.  Our December 2011 forecast broke a 5 month “less good” trend – and the January 2011 forecast continues December’s improvement.

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.

A Longer View and Caveats

Econintersect acknowledges that ECRI has said a recession is coming. In a statement on 30 September 2011 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.   ECRI has further clarified that this recession would begin in 1Q2012.

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 – although degraded from today’s levels, has bottomed and is beginning to improve. It should be noted that this index is below the level where the 2007 Great Recession began. On the other hand, it never recovered above recessionary levels either. As far as employment is concerned the recession never ended.

Black swan events play havoc with any forecast. The effects of the current Euro crisis are unpredictable (please read The Coming of an Economic Firestorm? and USA: Headwinds for 2012 and Beyond) with regard to the USA economy. Even if the Euro crashes, the rise of the resulting new European currencies do not necessarily bring recession – but it is the default and contagion resulting from any European sovereign debt defaults or banking crisis which would set loose unpredictable negative economic forces.

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.  Econintersect notes that most elements of the economy have NOT recovered to levels they had before the 2007-2009 recession. If this was prior to WWII, economists would consider the current USA economic state as a depression. Some actually do think we are in a depression, see Steve Keen, for example.

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 test its model over the past few months, Econintersect has made slight adjustments to the data sets and methodology to align it with the actual coincident consumer data. This realignment was done for the entire index.

All these changes has not altered any of the trend lines historically. 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 0.33 (up from last month’s 0.33), while the monthly index is at 0.7 (up from last month’s 0.5). The economic forecast is based on the 3 month moving average. 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 Forecast Remains Poor

The Econintersect Employment Index continues to forecast an increasingly “less good” jobs creation situation for the next six months. However, six months from today the index is projecting a beginning of a “more good” cycle.

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 year-over-year is above the levels forecast by the Econintersect’s Jobs Index. The table below lists the private non-farm payroll forecasts against the current (not original headline) BLS private non-farm payrolls. Please note that the BLS data continuously is revised, and this employment forecast section of the economic forecast uses the most current BLS estimates.




July 2011 135,000 173,000
August 2011 145,000 72,000
September 2011 145,000 220,000
October 2011 145,000 117,000
November 2011 125,000 140,000
December 2011 100,000
January 2012 90,000

Past EEI Forecasts

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