The Economy Is Not All that Hot

Written by Steven Hansen

This week another pundit again confirmed the economy is headed toward a recession.  Rail, a real time economic indicator is now negative year-over-year regardless of interpretation.

Many view the economy with their favorite pulse point – say GDP – which is a very, very lagging indicator. Hello people, GDP is continually revised, and the last recession was called a year after the revised and revised GDP estimate at that time started contracting.

Looking at the myriad of non-GDP economic releases individually will drive one crazy as elements of the economy are not necessarily in phase with each other, and there are reasons which depress or fuel each economic segments.

Overall, the economy seems to be more robust then the weak growth indicates – but one must look for outliers which would indicate an alternate conclusion.

The pundit repeating his recession call this week was Gary Schilling.  He also called for the S&P to fall to 800 (a 43% fall) – all as this Bloomberg video explains:

My nagging concern that there are few USA economic segments where growth is accelerating, all while the stimulus effects ebb and global growth projections are slowing.

A timely way to look at the economy is the Federal Revenues (which are mostly from various taxes).  Monthly Federal income is reported shortly after month end, and logic dictates that as long as the tax rate laws are unchanged – it should be a good indicator of the economy

One problem using tax revenues is that they are noisy – and to obtain any sort of coherent output requires viewing the revenues as a 3 month rolling average.  On the other hand, backward revision is statistically unnoticed if it happens at all.

Looking at Federal Revenues as a recession indicator – they began contracting year-over-year in July 2001 (vs the NBER recession start date of March 2001 which was announced on November 26, 2001), and in February 2008 (vs the NBER recession call start  of December 2007 which was announced in December 1, 2008).  The point here is that even being a little late in indicating a recession had begun, that monitoring Federal Tax Revenues is far faster (and more accurate in real time) than using the continuously revised GDP as a metric to understanding the real economy.

Growth in Federal Revenues over the last 8 months has averaged an annual rate of growth of 2.8% – and the 7 month growth trend is more or less flat (stable).  The scary part is that historically this low rate of Federal Revenue growth is not normal.

The whole economy just seems not to be acting in a historically normal manner.  Those pundits that have called a recession are looking at trusted economic elements which are indicating contraction.  I trust nothing at this point in this New Normal recovery.

Other Economic News this Week:

The Econintersect economic forecast for April 2012 shows a less good growth. There has been a degradation in our government and finished goods pulse points.

ECRI has called a recession. Their data looks ahead at least 6 months and the bottom line for them is that a recession is a certainty. The size and depth is unknown but the recession start has been revised to hit around mid-year 2012.

This week ECRI’s WLI index value improved to 1.4 – the best index value since August 2011. This is the twelfth week of index improvement. This index is now indicating the economy six months from today will be marginally better than today.

Initial unemployment claims essentially increased from 357,000 (reported last week) to 380,000. Historically, claims exceeding 400,000 per week usually occur when employment gains are less than the workforce growth, resulting in an increasing unemployment rate (background here and here). The real gauge – the 4 week moving average – rose from 361,750 (reported last week) to 368,500. Because of the noise (week-to-week movements from abnormal events AND the backward revisions to previous weeks releases), the 4-week average remains the reliable gauge.

Data released this week which contained economically intuitive components (forward looking) were rail movements and the import portion of the trade balance . Although overall rail is contracting year-over-year, economic related components are weakly improving. The growth in imports has always been a positive sign of USA economic growth.

Weekly Economic Release Scorecard:

March CPI: Moderated from 2.7% from 2.9% year-ver-year
Preliminary April Michigan Sentiment: Consumer Sentiment Down Again
Caught on Tape: President Obama and Rod Blagojevich
Inflation Continues to Moderate in March 2012 PPI
Trade Data for February 2012 Is Good, Export Spike May be Transitory
Oil Ratio to Natural Gas Goes Parabolic
When Billionaires Clash
Update: The Case Against Investing in the Dow Industrials (For Now)
Import-Export Prices Moderates Year-over-Year in March 2012
Five Ways for China to Rebalance
60 Minutes European Crisis Review
Buffett Trashes Gold Because It Is Like Tulips
February 2012 JOLTS Continues to Predict Moderate Jobs Growth
February 2012 Wholesale Sales Great, Complete Series Reset
Steve Keen Interview on the Debate With Paul Krugman
Stocks and a GDP Slowdown
Another Kick at the Employment Can Compliments of Conference Board
March 2012 Rail Movements Contracts, All Due to Coal
The Great Debate©: Keen and Krugman on Money and Banking
Silver Price Manipulation – Not If but Who’s Doing It
Reviewing the Bull Market Stampede
It’s Time for a Fiscal Policy Comeback
The Week Ahead: More Excuses for Selling?
February 2012 Consumer Credit Growth Unchanged at 4.3%
Neville Chamberlain and Barack Obama Are Known for Appeasement
Investor Warning: US Banking Crisis Is Not Over
Trefis: Week in Review 7 April 2012
Unemployment Numbers Are for Dummies

Bankruptcy this Week: Reddy Ice Holdings and Reddy Ice Corporation

Failed Banks this Week: None

One reply on “The Economy Is Not All that Hot”

  1. You cannot look at the y-o-y growth rate of tax receipts last year without taking into account the withholding tax changes that began at the beginning of 2011. That in itself likely accounts for most of the apparent deterioration in tax receipt growth the past year. And it should begin reversing itself very soon. In fact I know withholding tax receipts have already started rising again y-o-y.

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