The US economy posted a slightly stronger pace of growth in June, “led by improvements in production-related indicators,” according to today’s release of the Chicago Fed National Activity Index, a weighted average of 85 economic data sets. The improvement boosted the three-month moving average (CFNAI-MA3) of the Chicago Fed Index to -0.26 last month, up modestly from the revised -0.37 for May. The increase in the three-month average is slightly better than my average econometric forecast for this benchmark.
Stocks, Inflation Expectations, & “High-Powered” Money Supply
Inflation expectations and the US stock market are again moving in the same direction, for the first time this year since early February. The new abnormal, as I like to call it, appears to have made its return after a roughly four-month hiatus that had investors and economists scratching their heads about the implications for markets and macro. It’s still early to write the final chapter on what it all means, but it looks like a return to form in recent weeks. That is, the stock market’s recent gains are again accompanied by rising inflation expectations, based on the yield spread between the nominal and inflation-indexed 10-year Treasuries.
Book Bits | 7.20.13
● What Went Wrong: How the 1% Hijacked the American Middle Class . . . and What Other Countries Got Right
By George R. Tyler
Review via Publishers Weekly
In his first book, Tyler, a former Clinton administration deputy assistant Treasury secretary, slams popular acquiescence to low wages, imperious CEOs, and diminished national net worth. He contrasts the pursuit abroad of “family capitalism”—a doctrine of healthy compensation, job retraining, and productivity growth—with the increasing income disparities in the U.S. that destroy economic mobility and perpetuate poverty. Tyler identifies the Reagan era and its free-market dogma as the beginning of the reversal of middle-class growth, but sees little change since then. He argues that a first step toward recovery would be to boost the wages of lower-income households; he cites Australia and Europe as examples showing that prosperity and living wages are complementary, not contradictory. Whatever the merits of his proposals, the array of data he presents justifies popular apprehension about America’s future. The key issue is not big government vs. small government, he maintains, but rather the distribution of wealth.
Chicago Fed Nat’l Activity Index: June 2013 Preview
The three-month average of the Chicago Fed National Activity Index (CFNAI) is expected to rise incrementally to -0.39 in the June report, according to The Capital Spectator’s average econometric forecast. That compares with CFNAI’s previously reported three-month average of -0.43 for May. A value below -0.70 indicates an “increasing likelihood” that a recession has started, according to guidelines from the Chicago Fed. Based on today’s estimate, CFNAI’s three-month average is projected to remain at a level that’s historically associated with economic expansion, albeit at a below-trend rate, in the update for June, which is scheduled for release on Monday, July 22.
US Economic Profile | 7.19.13
Business cycle risk continues to remain low, according to the June update of the Economic Trend (ETI) and Momentum indexes (EMI). Both benchmarks, which measure the broad trend in the economy by way of 14 economic and financial indicators, are still well above their respective danger zones. As a result, the NBER is unlikely to declare June as the start of a new recession, as suggested by the current data sets available.
Jobless Claims Fell Last Week, Close To A 5-1/2 Year Low
New filings for unemployment benefits skidded last week by a healthy 24,000, settling at a seasonally adjusted 334,000 through July 13. That leaves new claims near the lowest level in more than five years. The year-over-year decline continues to look encouraging as well, with last week’s unadjusted claims data (before seasonal adjustment) dropping more than 10% vs. the year-earlier level. The main takeaway: the labor market continues to heal and this leading indicator suggests that modest economic growth is still on track for the near term.
June Was A Rough Month For Housing Construction
Residential construction in the US tumbled last month, according to the Census Bureau’s June report. Housing starts dropped a hefty 9.9% to a seasonally adjusted annual rate 836,000, the lowest since last August. The decline was substantially below expectations, and the red ink is compounded by the fact that newly issued building permits also retreated, retreating by 7.5% vs. May.
Blinded By Correlations
Neil Irwin at The Washington Post’s Wonkblog has some fun at the expense of hedge funds. In a tongue-in-cheek announcement of a new hedge fund strategy that focuses on football betting in Vegas, he points out that the expected return “is not affected a whit by whether the stock market rose or fell that year. In the world of investing, a ‘non-correlating’ asset like my hedge fund is particularly desirable. You want things that zig when the rest of the markets zag, or at least where the zigs and zags happen randomly.”
Slow But (Mostly) Steady Growth For Industrial Production
Industrial production increased by 0.3% in June, in line with expectations. Although the advance was modest, last month’s rise was the highest since February, the Federal Reserve reports. The upturn was enough to boost the year-over-year gain to 2.0% through June, or slightly better than May’s 1.7% annual rate. The cyclically sensitive manufacturing component also turned higher last month, gaining 0.3%, which is also the best monthly advance since February.
Macro-Markets Risk Index | 7.16.2013
US economic conditions continue to stabilize at relatively lower levels vs. the first five months of 2013, according to a markets-based profile of the macro trend. The deterioration that persisted through most of June has faded in recent weeks, giving way to a comparatively subdued trend. Despite the sharp decline in the Macro-Markets Risk Index (MMRI) in June, this benchmark closed yesterday (July 15) at 8.8%–a level that suggests that business cycle risk remains low. Although MMRI is near its lowest value since last August, 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.