U.S. exports of goods have rebounded very strongly this year, rising at a 37% annualized rate in the six months ending October. This is yet one more item on the growing list of V-signs. I've been highlighting this chart for a long time, initially because it showed a very strong rebound in outbound container shipments from the Ports of Los Angeles and Long Beach, and I thought that argued for similar growth in subsequent months in the government's official tallies of exports. Contain shipments, in other words, were probably good leading indicators of overall export performance. The data is finally in, and this looks to have been a correct assumption.
Of course, exports are still well below their best levels of last year, so we are still in the recovery phase of this new business cycle. But it still represents a fairly impressive recovery, which is not surprising given the sudden collapse of confidence and spending last year; all we needed to recover was a return of confidence, and that is the story that has been playing out over the course of this year. There is every reason to expect continued improvement in exports in the months to come.
Scott,
ReplyDeleteon a bit different topic.
ECRI leading inflation index is pointing to a rising CPI, exactly as you observed it in a past entry watching your indicator.
Rough guessing is, that is to early to ring the bells. But, what should happen with it to shake/invert risk trade.
Thanks again
FM
I'm working on a longer explanation of this, but for the moment it occurs to me that what could really shake the markets up is for its major assumptions to be challenged.
ReplyDeleteAssumption #1: the US economy is still very weak and at risk of sinking into another recession.
Assumption #2: monetary policy is going to have to be extremely accommodative for a very long time if the economy is to have any chance of avoiding another recession.
Assumption #3: The extreme weakness of the economy virtually assures that inflation will not rise, despite the Fed's massive liquidity injections.
I don't see why these assumptions can't be challenged in the months ahead. Leading indicators (e.g., commodity prices, claims, ECRI) point to continued growth of the economy. Leading indicators (e.g., gold, commodity prices, weak dollar, steep yield curve, TIPS breakeven spreads) point to higher inflation.
If the economy proves stronger than expected and inflation rises, then assumption #2 will collapse. The Fed will advance its timetable for tightening, and interest rates will rise. The dollar should do well in this environment because it is so weak to begin with. Stocks should do well because growth prospects will improve.
Thank you, for your effort to make things clear to us.
ReplyDeleteFM
Scott-
ReplyDeleteThis is alot like what I said in the comments of your Obama Approval Ratings post - when certain things happen that are unexpected, the market can surge. Those things are: 1) the global economy shows sustainable growth and people start to believe it - this is akin to your Assumption 1, 2) the dollar firms, putting some certainty around energy adn other input prices, this is akin to your assumption 2. I ignore your assumption 3 for now, but what I would substitute is the turn in "the policy cycle" - if we get Democrat loses in the Sausage Factory in 2010 and thus gridlock, that would be the icing on the cake for a move upward.
Donny: Already the prospect of Democratic losses in next year's elections is a source of comfort for me and for the market. The hard-left agenda is losing steam, and that is good for the economy.
ReplyDelete"I'll never have a better year of forecasting."
ReplyDeleteIs that a forecast?