In recent weeks, the ECRI Weekly Leading Index has declined sharply. It did so last summer too, supporting the dire forecasts of the Double Dippers. But it recovered during the fall, and the economy continued to grow albeit at a slow pace. The ECRI’s warning on Friday that a recession is imminent doesn’t jibe with the monthly indicators that have been coming out for the third quarter. Indeed, many of them suggest that real GDP should be up by around 2%. That’s not strong enough to lower the unemployment rate, but it beats a recession.
The strongest sectors of the economy right now are auto sales and production, and capital goods shipments and exports. Auto sales rose during Q3, averaging 12.5 million units (saar), up 2.5% from Q2’s pace of 12.2 million units. That doesn’t seem like much, but it is boosting production. More importantly, sales ended the quarter very strongly at 13.1 million units. If they hold at that pace during Q4, then auto sales will also boost the current quarter’s real GDP. They might even do better given the decline in gasoline prices. That seems to be boosting demand for light trucks, which rose to 6.0 million units (saar) during September, the best pace since March 2008.
Another strong sector is the capital goods industry, where orders, shipments, and exports rose to new cyclical highs in August. Orders for machinery rose to a new record high during the month, led by construction & farm machinery. Also rebounding strongly are civilian aircraft orders and mining, oil field, and gas field machinery shipments. On the other hand, orders for electrical equipment have been edging down since late last year.
See also this post from Mark Perry
8 comments:
The problem with the ECRI is that they won't share their methodology. They sound like sober analysts, but who knows. Other things against the DD argument:
1. jobless claims have fallen below 400K
2. todays ADP report
3. Consumer confident up off its low.
4. architectual billings index turning positive.
5. Exports from port of LA up.
6. LEI Positive
7. the Yield curve
8. Railroad traffic back into positive growth.
9. Hotel occupancy improving year over year.
10. MLB attendance breaking three years of declines.
11. Increased steel production
12. Price of oil off it's highs.
13. Q2 GDP revised upward.
So, Anonymous, given that data, I wonder if we can say truthfully that we've already had the double-dip; it's just that we didn't dip all the way down into negative GDP territory.
Jim,
It's quite possible. I don't mean any of this to suggest the economy is robust, for cleary it is not, but I think for now, it is still growing. I think that GOP's economic terrorism on the debt ceiling did hurt growth in August. Maybe we are just bouncing back to the slow growth that we should have been experiencing if those numbnuts hadn't played politics
Jim
The real issue here is one of economic definition; for most people things are plain terrible.
HS
ISM Non-manufacturing coming in with a 48.7 in the employment index does not bode well for the near term.
Challenger reporting the highest planned layoffs in more than a year does not bode well for the near term.
The decline in real weekly wages month to month (down 0.8%) and year over year (down 1.8%) does not bode well for the near term.
Right now I expect that to hobble the holiday shopping season and I expect that retailers will end up hiring less seasonal workers than previous years but that won't be reflected in BLS properly due to their seasonal adjustments.
There simply isn't any driver out there to avoid a recession. We are probably already in it now, as NBER will tell us some months down the road. We have had GDP and various other statistics (measured in dollars NOT adjusted for price) floating up on nothing more than inflation for pretty much 5 months now.
The worst aspect of all of this is that if the consumer, on their own, does not pull us out of the recession we aren't getting out of it. Washington won't do it. Wall Street won't do it.
Extend and pretend has been a complete failure.
The big question right now is Greece and whether there can be an orderly Greek default. I see little hope for Greece. Austerity will just make their economy worse, which in turn will make their debt worse. On the other hand, in the long run, the Greeks just have no political will to tackle their debt problem, and any attempt to force them to do so will cause social unrest and chaos. The ECU will have to find a way to let Greece default without causing a banking panic. If we are lucky (Democrats lucky - GOP unlucky), they will find a way to keep Greece afloat until after the 2012 elections.
But that doesn't necessary mean that the United States economy is going to tank. The decrease in exports could be offset by the benefits of lower oil prices, as a recession in Europe decrease world oil demand. Also, a careful look at the Challenger report shows that the bulk of the planned layoffs are in the military and Bank of America. Thus, the report might not be as bad as it seems. The lower holiday hiring will cause the unemployment rate to rise between now and January; but that could also mean less layoffs after the holiday season.
In the nineties recession, I remember massive unemployment but a constantly rising market. Every layoff was greeted with happy trading.
As for this being the end of the dip ... zerohedge just posted a funny chart. Short interest in the spx is at the highest since March 2009. If you want a stunning contrary indicator, use that. Supposedly all the markets conclusively lost support yesterday. And yet we got a 4%stunning rally end of day. Funny eh?
Dean Baker is wont to say the folks warning about a double-dip usually have the motive of making the longterm virtually stagnated economy feel better.
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