Thursday, June 17, 2010

Leading Indicators still point to growth


I'm not a big fan of the Leading Economic Indicators published by the Conference Board, but as this chart suggests, there is not a whiff of evidence in these indicators that suggests we might be approaching a double-dip recession. Indeed, the behavior of the index is very much in line with what it has been in the early stages of every recovery over the past 50 years.

6 comments:

brodero said...

Scott..did you see today that
GM is not going to do its tradtional summer shutdown. I know
jobless claims applies high seasonal factors on July 10 and July 17 I think to adjust for the layoffs....isn't this going to produce some really low adjusted jobless claims numbers?? or what is it that I am missing.

Scott Grannis said...

I think you're right. If GM doesn't lay off anyone, then the seasonally adjusted claims numbers are going to go down.

Bill said...

Scott,

What is the best predictor of a recession? The treasury spread model or is there really no good predictor?

Scott Grannis said...

Every recession in the past 50 years has been preceded by an inverted yield curve and a real Fed funds rate of 3-4% or more. Currently we have the exact opposite of that. The probability of recession is essentially nil.

Peter Ruh said...

Scott,

Thanks for doing this blog. I just found it and feel like a man in the desert who finally found a real oasis.

I've been wondering what Jude Wanniski would say in regards to the crisis of the past couple of years and how he would interpret the rise in gold. Any ideas.

Also what do you make of the highly publicized ECRI indicators showing a rolling overs.

WLI Growth Drops

Dow Jones Newswires
June 18, 2010

(Dow Jones) - Growth in the ECRI weekly leading index fell further into negative territory.

The growth rate for the week of June 11 weakened to -5.7%, down from -3.7% in the previous week, which had been the first negative reading in almost a year.

"Despite the WLI's rapid drop over the last six weeks, its downturn has not been sustained enough to signal an imminent recession," said Lakshman Achuthan, ECRI director. Growth in the May index dropped to 1.5% from 14.1% in April.

Peter

Scott Grannis said...

Peter: thanks for the compliment! As for the ECRI, see my post of June 15:

http://scottgrannis.blogspot.com/2010/06/comment-on-ecri-leading-indicator.html

As for Jude, I too wonder what he would make of what's going on. I sometimes disagreed with him, but he was the most prolific thinker I have ever know, and his insights were generally excellent.

The best explanation for the crisis of 2008 can be found in the book "Panic" by Redleaf and Vigilante. See my post on the subject here:

http://scottgrannis.blogspot.com/2010/05/finance-book-of-year.html

I'm not sure Jude would have come up with this same explanation, because he wasn't an expert on derivatives and the inner workings of markets. But I do think he would have found it quite interesting. Nevertheless, he would have struggled to find a political reason for the crisis rather than a mechanical or market-based reason.

I'll guess that Jude would have interpreted the rise in gold to be a very bad sign. Bad monetary policy here and abroad, and bad fiscal policy in the U.S. Most of the supply-siders I know feel this way.