The Economy Is Entering A New Growth Cycle
Econintersect LLC | Aug 28, 2016 05:54AM ET
Some economists believe there are positive signs coming from the new home construction sector. Residential construction is still decelerating but this week a significant jump in new home sales occurred.
Follow up:
Was this jump in sales a one-off occurrence caused by price cutting to unload inventory? Pundits claim it was the beginning of first time buyers jumping in. Time will tell. A resurgent building sector would be the foundation of a solid recovery.
My premise is that the USA is at the bottom of a business cycle. The data is being evaluated against very weak data for the previous year. At business cycle bottoms, some REAL TIME data improves, some flat-lines, and other data continues to decline. The last major business cycle bottom was in 2009.
When you view the above graph, consider the data has been revised many times since it was first released. At the bottom of this cycle, some sectors were declining and others were improving.
Here is the same sectors showing how the year-over-year growth looks today.
Generally the data trends are currently mixed. But unlike the trough at the end of the Great Recession, the economy was not in free fall this year. Leading up to the current trough, the rates of decline were very moderate.
The coincident indicators are just beginning to show bottoming and insignificant upward movement. My go-to coincident indicator is the CFNAI (shown in the graph below) is at the highest level in more than one year. Also the leading indicator's upward movement began approximately six months ago.
A few trends do not a bottom make. However, if you combine this with:
- the business cycle process,
- transport trends
- it does not take much imagination to believe the USA business cycle's recovery may have begun.
I am not forecasting that the recovery of this cycle will be strong based on the historically weak data rolling in. The USA economy is being controlled by square thinkers who still believe in blood letting, and in 'trickle' economics (what is good for business is good for citizens).
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Many pundits are pointing to historically low initial unemployment claims as a positive indicator for a stronger cycle recovery. However the rate of improvement in initial claims is slowing (blue line on graph below), and there is a weak inverse correlation with GDP growth (red line). If this weak correlation remains linked - initial unemployment claims is pointing towards weaker economic growth.
In any event, there is no long term employment planning in the USA. Economists' actions seem to indicate that employment does not need much intervention. I wonder if this approach can continue as the transport and other sectors could phase out nearly 2 million jobs over the next 10 years due to automation / robotics. That is one year's worth of job growth at the current rate. I get the concept that new technology should create as many jobs as it replaces. I guess things are true until they are no longer true.
However, I have a bottom line as this all plays out: A "consumer driven" economy is retarded when its citizens do not have jobs.
Other Economic News this Week:
The Econintersect Economic Index for August 2016 is no longer in contraction but its level is correlating to snail's pace economic growth. The index remains near the lowest value since the end of the Great Recession.
Bankruptcies this Week: none
Click here to view the scorecard table below with active hyperlinks
Weekly Economic Release Scorecard:
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