Don’t Worry, I’m An Economist!

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Compared to 6 months ago this sign has been showing some signals of recovery, even though it’s still on rather low levels (even though compared to all other busts experienced so far). However, the US housing market has experienced an unprecedented slump so that it will take a lot of time for this indicator to recover. A growing amount (at least in the craze) of purchases in processing in durable goods is an optimistic indication for the recovery; however, when looking at the index of new orders (upper right), the picture is bleak for the most part.

It seems this indicator went down in recent months signaling a potential loss of self-confidence among businesses. 6 months ago the situation was a little better, but the verdict was inconclusive even. It is apparent that the indicator is highly sensitive to worrying signs of investor confidence that will constrain businesses in their expansion and new orders.

It includes non-residential (lower right) and home fixed investment (lower remaining), where home continues to be low (for the same reasons as the new housing permits sign, which is what residential investment mostly comprises of). Within the category of investment, a very important thing to look at is the inventories index (upper right) which is showing volatile movement in the past couple of years.

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While this sign was the main cause of good US GDP growth data back January (when it stood at 3%), now it’s one of the main motorists of the slowdown in GDP development. In the past it was hard to tell whether the certainly temporary upsurge in inventories was credited to higher expected future demand, or pilling up stock credited to an overestimated demand.

It turns out that the later was the case. Employment – population proportion: Last time I used a proper leading indicator – unemployment insurance promises – however, the increasing trend of people leaving the labor force made me use a much more unbiased and precise indicator. According to the one, there is no indication of a recovery in America labor market still.

Greg Mankiw likes to grab this sign in his regular posts on “Monitoring the So-Called Recovery”. Finally, is a joint here, weighted-averaged US Leading economic index (LEI). Six months ago, the LEI was averaging higher while displaying a slight move towards a poor direction. Now it has obviously gone downwards, implying a poor outlook within the next month or two.