March 2012 Economic Forecast: No Recession In Sight

Written by Steven Hansen

The Econintersect March 2012 economic index shows underlying economic fundamentals continue to improve at near the same growth rate as February.

As of 29 February 2012, rail transport was not growing year-over-year – and this raises some economic caution flags as  certain rail movements have forward looking elements.  All other coincident data with forward looking elements are clearly in expansion territory. Historically accurate recession markers of Industrial Production and Employment growth remain strong – and well away from recession territory.

Please see Coincident Data Providing Confirmation of Improving Economy for an overview of coincident indices.   What makes our forecast important this month is that ECRI has renewed their recession call.

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 – and the graph above is updated through December 2011.

Jobs growth is moderate, and over the last twelve months the average numbers of jobs added to the workforce have equaled the jobs growth needed to cover job market growth.  The rate of growth is continuing to increase.  Jobs growth remains well above levels that historically signal recessions.  Unfortunately, this index too is moderately to significantly modified for many months after issuance.

Be warned, these are rear window economic views, not forecasts.

The current Econintersect forecast is based on the index’s three month moving average. Our December 2011 forecast broke a 5 month “less good” trend which then peaked with our February 2012 forecast.

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.

ECRI has pushed back the start date of a recession to mid-year 2012. Econintersect‘s methodology only views one month ahead while ECRI claim their indicators look at least 6 months ahead.

There are no recessionary indications are evident in our more limited outlook.  Our employment outlook, which does have a 6 month vision – 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) are trending up.

Econintersect notes that most elements of the economy (inflation adjusted) 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 believes that the New Normal economy has different dynamics than most economic models.

As Econintersect continues to back check its model, from time-to-time makes slight adjustments to the data sets and methodology to align it with the actual coincident data appropriate for Main Street. To date, when any realignment was done, no change altered trend lines or recession indications. Most changes to date were to remove data sets which had unacceptable backward revisions. 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 Main Street economy at least 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 0.50 (statistically unchanged from last month’s 0.51), while the monthly index rose from 0.35 to 0.45. The economic forecast is based on the 3 month moving average as the monthly index is very noisy. 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.

Jobs Growth Forecast Improves

The Econintersect Employment Index is forecasting an improving jobs creation situation for the next six months.

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.



Current Actual*

July 2011 135,000 175,000
August 2011 145,000 52,000
September 2011 145,000 216,000
October 2011 145,000 139,000
November 2011 125,000 178,000
December 2011 100,000 220,000
January 2012 90,000 257,000
February 2012 95,000
March 2012 125,000

* the current estimate of month-over-month growth

Analysis of Economic Indicators:

Econintersect analyzes all major economic indicators. The table below contains hyperlinks to posts. The right column “Predictive” means this particular indicator has a leading component – in other words has a good correlation to future economic conditions.

Links to Analysis Of Indicators:

Leading Indicators
ECRI economic forecasts x
Leading Economic Indicator x
Economic Metrics
Gross Domestic Product
Chicago Fed National Activity Index x
Federal Reserve View of Economy (Beige Book)
Federal Reserve FOMC Meetings
Trade Balance x
Ceridan-UCLA Diesel Based PCI x
Rail Traffic x
Sea Container Counts x
Truck Transport Tonnage
University of Michigan Consumer Sentiment
Consumer Credit
Conference Board Consumer Confidence
Personal Consumption Expenditures (PCE)
Prices and Inflation – CPI, PPI and Export/Import
Business & Manufacturing
Wholesale Sales
Retail Sales
ISM Non-Manufacturing Survey x
Manufacturing Sales
ISM Manufacturing Survey
Durable Goods
Industrial Production x
Empire State Manufacturing Survey
Philly Fed Business Survey
Construction Spending
New Home Construction
Real Estate
Pending Home Sales
Case-Shiller Home Price Index
New Home Sales
Existing Home Sales
CoreLogic Home Price Index
Weekly Initial Unemployment Claims
Job Opening and Labor Turnover Survey (JOLTS) x
Bureau Of Labor Statistics Jobs Report
ADP Employment Report

General Economic Indicators:

Monthly Data: [click here to go to source file]

Quarterly Data: [click here to go to source file]

Aruoba-Diebold-Scotti Business Conditions Index: [click here for source file]

Past EEI Forecasts

One reply on “March 2012 Economic Forecast: No Recession In Sight”

  1. The Street has a wildly euphoric expectation of the Feb non-farm payroll, about or better than that of Jan’s. I know you don’t like BLS’s methods. Just curious why yours is more conservative.

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