Recession Watch Indicator for week ended September 21, 2012

Here's my own personal cut at a recession watch indicator, for week ended September 21, 2012.

• ECRI Weekly Leading Index Growth Rate: modestly positive (+2.7) – pale green flag (+1)
• ECRI recession call: yes, a real negative - bright yellow (-2)
• Weekly Employment Insurance Initial Claims moving average: elevated but reasonably below 400K (378K) – pale green flag (+1)
• Recent M2 Money Stock: rising – green flag (+2)
• Macroeconomic Advisers GDP outlook for Q3: modest growth (+1.7%) – pale green flag (+1)
• Recent Employment Growth: modest (96K) – pale green flag (+1)
• Recent ISM Manufacturing Reports: slightly negative (49.6) for third month – pale yellow flag (-1)
• Recent ISM Services Reports: modestly positive (rose to 53.7) – pale green flag (+1)
• Average: +0.50 – pale green – recession not likely although still remotely possible

No real change in the overall outlook since last week.

 

ECRI still insists that we are already in what could be called an "invisible" recession (my words), but I would assert that the ongoing strength of the service sector of the economy overwhelms the weaker manufacturing sector. I suspect that ECRI's long-term data series history is biased by a manufacturing sector that has increasingly become less relevant as the decades and years have gone by.

 

I continue to expect that the "fiscal cliff" in 2013 will result in some economic weakness, but not an outright deep and prolonged recession. Call it a weak recession or a semi-recession if you want, but not a full, deep recession.

 

-- Jack Krupansky

Recession Watch Indicator for week ended September 14, 2012

Here's my own personal cut at a recession watch indicator, for week ended September 14, 2012. I have made a change, to include the ECRI recession call itself as one of the indicators. I also revised the M2 money growth assessment to assess the raw growth rather than trying to judge how much impact it may have, which is already moderated in the other indicators. So, for this past week we have:

 

• ECRI Weekly Leading Index Growth Rate: modestly positive (+2.1) – pale green flag (+1)
• ECRI recession call: yes, a real negative - bright yellow (-2)
• Weekly Employment Insurance Initial Claims moving average: elevated but reasonably below 400K (375K) – pale green flag (+1)
• Recent M2 Money Stock: rising – green flag (+2)
• Macroeconomic Advisers GDP outlook for Q3: modest growth (lowered to +1.7%) – pale green flag (+1)
• Recent Employment Growth: modest (96K) – pale green flag (+1)
• Recent ISM Manufacturing Reports: slightly negative (49.6) for third month – pale yellow flag (-1)
• Recent ISM Services Reports: modestly positive (rose to 53.7) – pale green flag (+1)
• Average: +0.50 – pale green – recession not likely although still remotely possible

No real change in the overall outlook since last week.

 

ECRI still insists that we are already in what could be called an "invisible" recession (my words), but I would assert that the ongoing strength of the service sector of the economy overwhelms the weaker manufacturing sector. I suspect that ECRI's long-term data series history is biased by a manufacturing sector that has increasingly become less relevant as the decades and years have gone by.

 

I'll make a separate post on the prospects for a recession when the U.S. government hits the so-called "fiscal cliff" in 2013. In short, I believe that we will sidestep a full-blown recession, even if we do have a very weak or even negative quarter or two. Call it a weak recession of semi-recession if you want, but not a full, deep recession.

 

-- Jack Krupansky

Q3 GDP forecast lowered to +1.5%

Macroeconomic Advisers (MA) has lowered their annualized real GDP forecast for Q3 to +1.5%. That's rather weak, but still not suggestive of an imminent recession. Their previous forecast had been for +2.0%, which in turn had recently been lowered from an earlier forecast of +2.2%.

-- Jack Krupansky

Obama remains a shoe-in for reelection

I should have made this post months ago, like back in the spring, but better late than never. Nothing has really changed since then as far as the big picture. Although there are lots of different polls and opinions on how the presidential election will play out, after a lot of poking around I have settled on two for how I view the prospective outcome of the election.

 

First, the RealClearPolitics composite poll provides a more stable and (hopefully) reliable indicator than the noisy jitters of the individual polls. Obama has consistently held the lead in the RCP composite poll. It was a tie briefly in the lull between the two conventions, but Obama is back to a 1.8% lead. Obama also leads with 221 electoral votes to Romney's 191.

 

The second indicator is the Intrade open prediction market where people are actually bet real money on the outcome. Obama has consistently been the leader. Currently he as at 58% to 42% for Romney. Romney got a boost from Ryan and a small boost from the convention, but Obama quickly rebounded.

 

In short, Obama remains a slam-dunk shoe-in for reelection.

 

As I like to tell people, all Obama has to do is smile and keep his shoes shined, and either buff his flag pin or appear in rolled-up shirtsleeves.

 

Could the weak economy derail Obama? No way. A weak economy actually works in Obama's favor. He has an excellent record of being a great steward for a recovery from a very dismal financial and economic crisis, thanks to financial professionals such as Bernanke and Geithner and Summers, with a few solid Republicans in cabinet positions. When the economy is great, people want government out of the way, but when the economy is weak, people want a helping hand from government. If Obama had been completely incompetent and screwed up a robust economy then he'd be shown his way out the door by voters, but he's already done much better than that. On the other hand, the economy is too weak and with too little time for it to get a lot better before the election, so there is zero chance that the economy (e.g., unemployment) will be so much better by election day that voters would be ready to return to a you're-on-your-own free market conservative Republican form of government.

 

All of that said, voters aren't so sold on a purely Progressive Liberal government, so with one hand they will hand Obama his re-election, but with the other hand they will give him an ideologically divided Congress that will have zero tolerance for any major "progressive" legislation.

 

I'll probably update this post a few times before the election, but I am confident that the overall prospect will remain unchanged.

-- Jack Krupansky

Will the Fiscal Cliff cause a deep recession in 2013?

Nobody really knows exactly what the impact on the U.S. economy will be when the U.S. government hits the so-called "Fiscal Cliff" at the start of 2013. For sure, there will be SOME significant impact, but I do not concur with the common assumption/belief that there will necessarily be a deep recession. Even ignoring the prospect that there might be some compromise agreement to blunt the full cliff (expiration of tax cuts and automatic government spending cuts), there is simply no way to predict how the "sequester" will actually play out and exactly how government vendors will respond, and not all workers will respond in the same way as their taxes rise modestly.

 

We also don't know how the Federal Reserve will respond, but it is safe to say that the Fed would respond dramatically if the negative impact of the cliff is in itself too dramatic.

 

To put it simply, there are too many wildcards to predict the precise outcome.

 

I would say that there is a 50/50 chance that we will hit the full cliff without any compromise agreement. But even if we do initially hit the full cliff, I strongly suspect that there may be a follow-up partial compromise agreement if it appears that the actual impact of the cliff is too severe. So, maybe the full impact for a prolonged period might be only a 1 in 3 or 1 in 4 probability event.

 

I strongly suspect that the private sector will pick up a large portion of any shortfall in government services. One reason is that providing services to the federal government is very appealing and profitable business if you can get it, and in that sense a lot of government business is a diversion of productive capital away from the private sector to the public sector. So, if the potential return on capital from the public sector dwindles in any real way, private capital will tend to shift to other places where it can be deployed more productively. So, a drop in government business could result in a rise in private sector business. Or maybe not, but the prospect is still there.

 

The bottom line is that I personally expect that although the first three quarters of 2013 will be relatively weak, they still will NOT amount to a deep and long recession. At least two of those three quarters will be quite weak, and maybe one, two, or three of them may be negative, but the sum of all three will have only a 50/50 chance of being negative.

 

I predict that a year from now we will be patting ourselves on the back for "dodging the bullet." The naysayers will of course insist that "it could have been worse, much worse." Indeed, but in my book reality trumps what could have been.

-- Jack Krupansky

Recession Watch Indicator for week ended September 7, 2012

Here's my own personal cut at a recession watch indicator, for week ended September 7, 2012:

• ECRI Weekly Leading Index Growth Rate: modestly positive (+1.0) – pale green flag (+1)
• Weekly Employment Insurance Initial Claims moving average: elevated but below 400K (370K) – pale green flag (+1)
• Recent M2 Money Stock: rising – pale green flag (+1)
• Macroeconomic Advisers GDP outlook for Q3: modest growth (lowered to +2.0%) – pale green flag (+1)
• Recent Employment Growth: modest (95K) – pale green flag (+1)
• Recent ISM Manufacturing Reports: slightly negative (49.6) for third month – pale yellow flag (-1)
• Recent ISM Services Reports: modestly positive (rose to 53.7) – pale green flag (+1)
• Average: +0.71 – pale green – recession not likely although still remotely possible

No real change in the overall outlook since last week.

 

ECRI still insists that we are already in what could be called an "invisible" recession (my words), but I would assert that the ongoing strength of the service sector of the economy overwhelms the weaker manufacturing sector. I suspect that ECRI's long-term data series history is biased by a manufacturing sector that has increasingly become less relevant as the decades and years have gone by.

 

I'll make a separate post on the prospects for a recession when the U.S. government hits the so-called "fiscal cliff" in 2013. In short, I believe that we will sidestep a full-blown recession, even if we do have a very weak or even negative quarter or two.

 

-- Jack Krupansky