US GDP increased 1.7% (real seasonally adjusted annual rate) in this year’s second quarter, the Bureau of Economic Analysis reports. The pace of growth beat expectations by a hefty degree (based on the 1.0% growth consensus forecast via economists), although today’s “advance” GDP estimate from BEA is fairly close to The Capital Spectator’s average Q2 nowcast of 2.0%, which was published on Monday. Meanwhile, private nonfarm payrolls grew by a net 200,000 in July, according to today’s ADP Employment Report—a gain that also beat the consensus prediction from dismal scientists. It’s fair to say that today’s numbers offer more evidence that modest growth continues to dominate.
Monthly Archives: July 2013
ISM Manufacturing Index: July 2013 Preview
The ISM Manufacturing Index is projected to increase to 51.3 (moderately above a neutral 50.0 reading) in tomorrow’s update for July, based on The Capital Spectator’s average econometric forecast. The estimate reflects a slight rise from the previously reported 50.9 for June. The Capital Spectator’s average projection is below several consensus forecasts that are based on surveys of economists.
Narrative Risk
The Economist tells us that “the emerging market slowdown is not the beginning of a bust. But it is a tuning point for the world economy.” Growth, to cut to the chase, will be lower in China and across the emerging market realm. Some pundits look at this reasonable assumption and warn that it’s the beginning of the end; we’ve crossed the Rubicon as it relates to the global economy and international investing. Actually, there’s far less drama to this story. Narrative risk, as Barry Ritholtz explains, may be lurking. Indeed, if you’re looking at the evolution of emerging markets through the prism of certain media headlines of late, the end appears to be nigh, at least for this week.
Q2:2013 US GDP Nowcast Update | 7.29.2013
US GDP is expected to rise 2.0% (real seasonally adjusted annual rate) in this year’s second quarter, according to The Capital Spectator’s average econometric nowcast. Today’s update is a touch lower than the previous 2.1% nowcast average for Q2, published on June 21. The government’s initial estimate of this year’s Q2 GDP is scheduled for release on Wednesday, July 31.
Book Bits | 7.27.13
● When the Money Runs Out: The End of Western Affluence
By Stephen D. King
Summary via publisher, Yale University Press
The Western world has experienced extraordinary economic progress throughout the last six decades, a prosperous period so extended that continuous economic growth has come to seem normal. But such an era of continuously rising living standards is a historical anomaly, economist Stephen D. King warns, and the current stagnation of Western economies threatens to reach crisis proportions in the not-so-distant future. Praised for the “dose of realism” he provided in his book Losing Control, King follows up in this volume with a plain-spoken assessment of where the West stands today. It’s not just the end of an age of affluence, he shows. We have made promises to ourselves that are achievable only through ongoing economic expansion. The future benefits we expect—pensions, healthcare, and social security, for example—may be larger than tomorrow’s resources.
Can The Fed Prevent The Next Recession?
“None of the U.S. expansions of the past 40 years died in bed of old age,” MIT economics professor Rudiger Dornbusch famously observed in 1997. “Every one was murdered by the Federal Reserve.” Researchers tend to agree, as shown by numerous studies that link inverted yield curves with economic contractions. But does the history of the business cycle and monetary policy in the decades prior to the Great Recession of 2008-2009 still resonate today? In other words, what are the odds that the next recession will be a byproduct of monetary policy decisions, intentional or otherwise?
The Correlation Conundrum
A new study from the Bank of International Settlements (BIS) raises doubts about the value of commodities as a tool for enhancing portfolio diversification. The paper’s smoking gun, so to speak, is that “the correlation between commodity and equity returns has substantially increased after the onset of the recent financial crisis.” Some pundits interpret the study as a rationale for avoiding commodities entirely for asset allocation purposes. But that’s too extreme.
PMI Data Shows That Mfg Sector Grew At A Faster Rate In July
The US manufacturing sector grew at a moderately faster pace in July, according to today’s initial estimate of Markit Economics purchasing managers index (PMI). “The U.S. manufacturing sector picked up momentum again in July, with output, order books and employment all growing,” says Markit’s chief economist, Chris Williamson, in a press release (pdf). “The goods-producing sector acts as a bellwether of the wider economy, and the upturn in July therefore bodes well for the pace of GDP growth to have picked up again in the third quarter after a likely easing in the second quarter.”
Macro-Markets Risk Index | 7.24.2013
US economic conditions continue to stabilize in July after a sharp but so far brief deterioration in June, according to a markets-based profile of the macro trend. The deterioration that persisted through most of last month for this index has faded in recent weeks, giving way to a comparatively stable trend. Even after the sharp fall in the Macro-Markets Risk Index (MMRI) in June, this benchmark closed yesterday (July 23) at 10.1%–a level that suggests that business cycle risk remains low. Although MMRI is still near its lowest value in a year, it remains well above the danger zone of 0%. If MMRI falls under 0%, that would be a sign that recession risk is elevated. By comparison, readings above 0% imply economic growth.
Risk Management For Estimating Recession Risk
“The economy is showing signs of life,” advises David Malpass in today’s Wall Street Journal. “The U.S. economy may finally be in a position to accelerate above the so-called new normal—the painfully slow 2% average growth rate that has persisted since 2009,” the economist writes. His outlook is hardly unusual these days, but just 10 months ago in the same newspaper—in September 2012—he warned that “economic signals point to a 2013 recession.” He reasoned at the time that the then-current monthly declines in new durable goods orders and real personal income “waved bright red recession flags.” As we now know, the recession never came. In fact, as I’ve been discussing for quite a while now (including last week’s macro update), recession risk remains minimal. But how did Malpass (and, to be fair, a number of other economists) misread the macro signals late last year? Looking for an answer can help us decide what works, and what doesn’t, in the always-crucial task of estimating the odds for recession risk in real time.