Thursday, December 29, 2011

Is rail-freight suggesting that a recession is now unlikely next year?

An interesting story on Bloomberg entitled "Rail-Freight Surge Shows U.S. Skirting Recession" is about the first indication that I have seen that the economy is likely to see some strength in the early part of the coming year. That's good news, but not yet good enough to put the last nail in the coffin for a possible recession in 2012.
The fact that unemployment insurance initial claims are still trending down is also good news and although it is not an indicator of economic strength per se, it is an indication that economic weakness is not yet upon us.
The Chicago ISM Business Barometer report today was decent, but not strong enough to indicate any true strength going into the new year. Basically, it was suggesting more of the same. That will be great if it really means more of the expected +3.6% GDP growth in Q4, but that remains to be seen. My interpretation of the report is that a recession is unlikely in Q1, but we are not facing enough evidence of economic strength (yet) to be overly optimistic beyond Q1, yet. The report showed that more businesses were still seeing increases of new orders than seeing decreases, but it was still a minority of firms seeing increases, 39% vs. 43% seeing the same level and 18% seeing decreases.
Overall, this latest data does indicate to me that a recession remains less likely than likely even though ECRI does make a decent case that we may be facing deceleration that would leave the economy vulnerable to a recession if we run into even a moderate shock in the new year.
What we really need to see is whether businesses ramp their spending up or down over the next few months. The rail-freight report at least suggested that businesses were not (yet) ramping down.


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