There are no major economic reports scheduled today and so a day of the data vacuum awaits. That offers an opportunity to review the latest numbers in the dismal science in search of clues about where we’ve been in recent history and where we might be going.
First up is the Philly Fed’s Aruoba-Diebold-Scotti business conditions index. Its steady climb for much of this year through late-August suggested that the economy was rebounding, albeit off of severely low levels of commercial activity. More recently, the index slumped, although the latest albeit incomplete data hints at the possibility of an uptick in the weeks (months?) ahead, as the chart below shows.

Source: Philadelphia Federal Reserve
That mildly positive view jibes with the overall outlook of 41 economic forecasters surveyed by the Philly Fed. The economy will expand in each of the next five quarters, this survey advises. For the current quarter, the economists surveyed predicted that real growth in GDP will rise 2.7% in Q4. If so, that’s down from the 3.5% rise reported in the initial estimate of GDP for Q3. All of which implies a slowing in the rebound but well short of sinking.

But as we’ve suspected for some time, the labor market will remain conspicuously MIA in the rebound for a while longer, which probably explains why the overall pace of growth is expected to weaken somewhat. Quoting from the Philly Fed’s survey report,
Unemployment is now seen at an annual average of 9.3 percent in 2009 and 10 percent in 2010, before falling to 9.2 percent in 2011 and 8.3 percent in 2012. These estimates mark upward revisions from the forecasters’ previous projection. Likewise, growth in jobs looks weaker. The forecasters see nonfarm payroll employment falling at a rate of 160,000 jobs per month this quarter and 35,000 jobs per month next quarter. Both estimates mark downward revisions from the previous survey. The forecasters see jobs beginning to grow in the second quarter of 2010. Over the second half of the year, jobs will grow at a rate of 150,000 per month.
The mildly rising headwinds relative to past months are also evident in our proprietary U.S. economic index, which is published and analyzed in each issue of The Beta Investment Report. As we wrote in the November issue of the newsletter, the percentage of rising components in this index slumped to under 50% in September, indicating a possible slowdown in the recovery process. Meantime, a preliminary update of the October data for our index shows as of this morning shows that of the 14 components reporting through last month (out of 18 tracked for our broad economic index), 8 were positive in October and 6 lost ground.
Tempering expectations for the economic rebound is also underway elsewhere in the developed world. In Germany—Europe’s largest economy—fourth-quarter economic growth “will be less dynamic…as private consumption pales,” said Deputy Finance Minister Walther Otremba via Bloomberg News.
Back in the U.S., another sign that the recovery may continue to lose momentum can be found in yesterday’s update on The Conference Board’s index of leading economic activity. The index rose 0.3% last month, the Conference Board reported, down from a 1.0% rise the month before. “The data indicates that economic recovery is finally setting in,” said Ken Goldstein, an economist at the consultancy, in a press release yesterday. “We can expect slow growth through the first half of 2010. The pace of growth, however, will depend critically on how much demand picks up, and how soon.”
“The gears are starting to click but very, very slowly,” Philly Fed Chief Charles Plosser said yesterday via Reuters. “The economy is still quite flaccid.” Even so, he downplayed the risk of a double-dip recession. One reason is that the Fed plans on keeping short-term interest rates just above zero for the foreseeable future.
Meantime, next week brings the second update on Q3 GDP (Tuesday) and the latest on durable goods orders and personal income and spending. Will these numbers change the perception that the recovery’s slowing but not necessarily fatally? Stay tuned.