Wednesday, March 18, 2015

I’ve Lost That Economic-Loving Feeling

I’m kind of losing that “economic-loving feeling.” The ISM (Purchasing Managers) Index is weaker, exports are down, construction down, factory orders down, retail sales are below expectations, unemployment claims are up, and the Q4 GDP was revised down to 2.2%. Is this a problem?
It’s difficult to tell. The West Coast ports will be constipated for at least two more months. Not getting the stuff in hurts retail sales and increases manufacturing costs; not getting the stuff out really slows exports. New England is still literally buried in snow, and this year’s Siberian Express made the Polar Vortex put on a sweater.

So let’s check out some forward looking economic indicators to try to find an answer:

ECRI (Economic Cycle Research Institute) Weekly Growth Index

This index used to be “money” before the Great Recession jumbled all the economic data, but it still is reliable at forecasting the direction of the economy. The index peaked around May and has been running in negative territory since October. Considering the index is designed to forecast conditions six months out, it says things should start weakening about now.

The Call:  Very Interesting – but not in a good way.

Leading Economic Index (The Conference Board)

Up 0.2% in January, 0.4 in December, and 0.5% in November on the surface it looks positive, however their last summary says that “growth has moderated in recent months” and there is “downside risk” for the economy.

The Call:  Nervous about this “downside risk” statement considering the current environment.

Home Builder Confidence Index – (NAHB)

Down two points to 55 (50 is neutral), attributed to bad weather across much of the nation (although the index is supposed to be forward looking). The good news: housing is holding steady with the 2015 forecast. The bad news: housing is holding steady with the 2015 forecast.

The Call:  No news is fair news. If things are slowing, it is not due to the housing market.

Moody’s Survey of Business Confidence

“Confidence is especially strong in the U.S. where businesses are feeling good about sales, hiring, and investment.”

The Call:  Business executives still expect 2015 to be another decent year.

The NFIB Small Business Optimism Index

At 98.0 in February, basically flat from 97.9 in January. This index has stalled out, after a strong run in Q4.  It peaked at 100.4 in December, the first reading over 100 since the Great Recession.
The Call:  Hard to call, but there is a good chance it indicates moderately slower growth.

Bloomberg Consumer Comfort Index

This weekly measurement of consumer confidence was up 70 basis points to 43.5. However, this index had been declining in February and is still near its low point for the year. The “National Economy Subindex” portion hit a seven-and-a-half high in January, and then started to fade.
The Call:  This index is fairly reliable and it indicates consumer sentiment, and, therefore, future retail sales are weakening.

Philly FED Manufacturing Business Outlook Survey

The diffusion index for current activity fell slightly to 5.2, from 6.3. The diffusion for general future activity did take a noticeable dip however and is the lowest point in two years.

The Call:  It does appear that manufacturing growth in 2015 will be slower than 2014.

What It Means

These indicators, as a group, point to slower economic growth for the first half of 2015. Does this mean weaker than the 2.2% of Q4, or the 2.4% of 2014? Hey, I guess it doesn’t matter much, does it? None of the indicators are flashing “red” yet, except for the ECRI, so I think growth continues in 2015. The good news, if any, is that the economy is not overheated, so maybe just ease into the next recession, whenever that occurs.

The Scoop

The Wall Street Journal’s economic panel is forecasting GDP at 2.7% in Q1 and 2.9% in Q2. Based on these forward looking indicators, I’m betting on the “under.” 

Yes, I’ve lost that economic loving feeling – “Now it's gone...gone...gone...”

1 comment:

  1. Don, Thank you for your breakdown and I agree with you and want to add one more contributing factor. That would be inflation. Not the scrubbed numbers that are coming out of Washington and CNN, but real costs of consumer goods is rising at an alarming rate. I believe this rise is creating resistance in the consumer level.