November Economic Forecast: Still Predicting Moderate Growth But …

The Econintersect November 2012 economic forecast outlook recovered slightly following last month’s free fall.

• The indicators Econintersect uses to forecast remain mixed, and several are at 2012 low points.
• The index is barely forecasting moderate economic expansion – but remains in the growth channel seen so far in 2012. Even last month’s terrible data only slightly penetrated the bottom of the channel.
• Regardless of Econintersect‘s forecast, there are potential markers for a 2012 recession – industrial production and Personal Income less transfer payments are currently below the peak values seen in July 2012. Recession start dates are defined by peak economic activity (see technical requirements of a recession below).
• Although Econintersect is not warning that the economy may be entering a recession, one alternate method we use to validate our forecasts is walking at the edge of the abyss.

This is a relative index modeling the Main Street portion of the economy – it still shows that tomorrow will be better than today, but any difference is marginal.

Econintersect prefers to forecast the economy using non-monetary measures which of late have been more stable than the dollar based expenditures, incomes or stock market indicators. As this index is modeling a section of the economy, the turning points can be (and usually are) different than GDP based models.

This post will summarize the:

1. leading indicators,
2. predictive portions of coincident indicators,
3. review of the technical recession indicators, and
4. interpretation of our own index – Econintersect Economic Index (EEI) – which is built of mostly non-monetary “things” that have been shown to be indicative of direction of the Main Street economy at least 30 days in the future.

Consider:

• the “New Normal” economy is pulsing or growing in unpredictable spurts. These spurts are evident in ECRI’s WLI, Econintersect Economic Index (although the big pulses have not occurred in 2012), and the Chicago Fed’s National Activity Index (CFNAI). This makes the economy seem at times like it is gaining traction, and other times about to fall off a cliff. These economic pulses cause some to believe the economy is heading towards a recession – as forecasts use growth rate-of-change to assess economic trends. Further, these cycles are out of phase with the calendar – and the commonly used seasonal adjusting methodologies seem to exaggerate the cycles;
• The consumer is still consuming – and recent months shows the consumer is spending more income. There are nuances in consumer spending and the current background is ADP Employment Report
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  Written By: Econintersect LLC