Thursday, April 28, 2016

In which I was cheerleading the Q1 economy

 - by New Deal democrat

Back in 2009 and 2010, when I still wrote at the Great Orange Satan, I used to take flak for the crime of  allegedly "cheerleading" the economy.  You know, saying that the recession had bottomed and that the numbers were improving, when all of the Doomer kewl kidz just knew that conditions were always and everywhere getting worse and worse for everybody.

Well, Q1 2016 GDP just got reported preliminarily at +0.5%.  So let me give you a few samples of my cheerleading.

Back in December, citing the negative Index of Leading Indicators from last summer:
The US$ would not meaningfully have changed the value of the strong LEI values during the first half of 2014, but would have subtracted -.1 or -.2 in the last half of 2014 into 2015, and again during the 3rd quarter of 2015.  This would correlate well with the relative weakness of the economy in the early part of 2015, and strongly suggests rough patch this winter into next spring.
In January, quoting Prof. Tim Duy:
we might get a negative GDP print, the weakness in the economy is very concentrated.  The broader economy is holding up pretty well.  That's not a recession.
In my forecast for the first half of 2016:
The third quarter of 2015 featured no positive readings whatsoever.  On top of that, I have recently suggested that the trade weighted US$ should be included as a short leading indicator, with a weight given of +/- .1 for each +/-1% change in the value of the dollar.  Since the US$ has been slowly trending higher over the last 6 months, this suggests to me that this winter we can expect a definite rough patch, that probably has already started.   With the readings for the final 3 months of 2015 firmly positive so far, by late spring we should be seeing a rebound.
So as you can see, I am clearly nothing but a pom-pom-waving cheerleader.

And as for that potential rebound during this quarter, here are the new orders results from the 5 regional Fed manufacturing indexes for April:

  • Empire State up +1 to +11
  • Philly down -16 to 0
  • Richmond down -6 to +18
  • Kansas City unchanged at -2
  • Dallas up +11 to +6
The average of the five is +6, down from +9 ib March.  This suggest that we will get the 4th month in a row of positive ISM manufacturing new orders rreadings, traditioinally a harbinger of a turnaround in manufacturing activity.