Today’s durable goods report brings mixed news for the economy. That’s a good thing in the sense that the numbers aren’t uniformly discouraging. On the dark side, headline durable goods orders fell last month, tumbling the most since last August. On the bright side, so-called business investment—capital goods orders less aircraft and defense—posted a strong gain in January. Depending on your outlook, the macro glass is either half full or half empty.
Q1:2013 US GDP Nowcast Update | 2.26.2013
US GDP is expected to grow 2.0% in 2013’s first quarter, according to the latest update of The Capital Spectator’s average econometric nowcast. That’s up slightly from the previous 1.9% nowcast for Q1, which was published on February 5. Today’s nowcast reflects updates to several indicators used for computing the estimates. This year’s official Q1 data is scheduled for release on April 26, when the Bureau of Economic analysis will publish its initial GDP estimate for the first three months of 2013. (GDP percentage changes are quoted as real seasonally adjusted annual rates.)
Chicago Fed Nat’l Activity Index: Slower Slow Growth In January
The Chicago Fed National Activity Index (CFNAI) dropped in January to -0.32 from +0.25 in December, the Chicago Fed reports, although the three-month average (CFNAI-3MO) reading rose to +0.30 from an upwardly revised +0.23 in December. Recession risk, in other words, was minimal last month. Although economic growth slowed in the start of the year, the three-month average of this index in January was well above the -0.70 level. That’s considered to be the tipping point for the onset of recessions. (CFNAI, a weighted average of 85 indicators, is designed as a benchmark of US economic activity broadly defined.)
Book Bits | 2.23.13
● Sand in the Gears: How Public Policy Has Crippled American Manufacturing
By Andrew Smith
Summary via publisher, Potomac Books
American manufacturing has been on the decline for at least two generations; that fact is plain to any observer who travels through the Rust Belt of the Midwest, where the closing of steel plants and automobile factories has created ghost towns that dot the landscape. It is also clear in the dormant New England textile mills, whose owners surrendered their production first to cheaper mills in the Southeast before they, in turn, lost out to Asian labor.What caused this calamity, and what can be done about it? Andrew Smith argues that we lost our manufacturing not to forces beyond our control, such as globalization and cheaper labor overseas, but as the result of misguided policies that are well within our abilities to reform for the benefit of manufacturing.
Chicago Fed Nat’l Activity Index: Jan 2013 Preview
The three-month average of the Chicago Fed National Activity Index (CFNAI) is expected to post a modest increase to 0.03 in the January update, according to The Capital Spectator’s average econometric forecast. That’s up slightly from CFNAI’s -0.13 three-month average for December. A value below -0.70 indicates an “increasing likelihood” that a recession has started, the Chicago Fed advises. The January report is scheduled for release on Monday, February 25 at 08:30 am eastern.
January Economic Updates Continue To Trend Positive
With this week’s January updates on consumer inflation and residential building permits, three more indicators fall into place for last month’s estimates of The Capital Spectator Economic Trend & Momentum indices (CS-ETI and CS-EMI, respectively). In all three cases, the additions land on the side of growth, providing more statistical support for assuming that January 2013 is likely to remain recession-free in the month’s final edit for NBER’s macro history book.
Has The Declining Trend In Jobless Claims Run Its Course?
When should we expect jobless claims to stop falling? At some point, the trend will end for this cycle. That’s not necessarily the end for growth, at least not in the short run. When initial jobless claims stopped trending lower in 2005-2006, for instance, the economy didn’t peak until December 2007. The lag time isn’t unusual. Jobless claims tend to stop falling well before the onset of recessions. Sometimes claims bounce along a bottom for months, sometimes years, before the economy tanks. Weekly claims issue a warning sign only when the numbers are routinely rising, particularly on a year-over-year basis. For now, at least, there’s no sign of that dark state of affairs. But the possibility that claims have hit a floor, while still debatable, is certainly open for discussion these days.
Strategic Briefing | 2.21.13 | Budget Cuts & The Economy
Don’t Fear the Sequester | Brian Wesbury, First Trust
The first thing to realize is that implementing the sequester is not the end of the world. Not by a long shot.
Budget Cuts Seen as Risk to Growth of U.S. Economy | B. Appelbaum and A. Lowrey, NY Times
The fresh round of federal spending cuts scheduled to begin next week would slow economic growth in the next year, though not nearly as much as going over the so-called fiscal cliff might have, economists said.
What Kind of Cuts Grow the Economy? | Rep Kevin Brady, Nat’l Review
Spending reductions must be large, credible, and politically difficult to reverse.
The sequester would really cut the budget | Jamie Dupree, Atlanta Journal-Constitution
I know it’s hard for many people to believe, but instead of just trimming the rate of increase in the federal budget, the $85 billion in automatic budget cuts set to hit on March 1 would actually result in less spending by Uncle Sam.
CBO Testifies on the Budget and Economic Outlook | Congressional Budget Office
We anticipate that economic growth will remain slow this year, because the gradual improvement we see in underlying economic factors will be offset by a tightening of federal fiscal policy scheduled under current law.
Schroders’ Joanna Shatney cautiously optimistic as mandatory spending cuts loom over US | Joanna Shatney, Investment Europe
While GDP will be hit by these government spending changes, we see the multiplier effects as being more limited than the tax increases agreed to at the end of 2012 – meaning any effects from sequestration should be more manageable for corporate earnings.
Housing Starts Fell In January As Permits Rose
US housing starts dropped by a more-than-expected 8.5% last month, the Census Bureau reports. Meanwhile, newly issued building permits gained 1.8% over December’s total, at a seasonally adjusted annual rate. More importantly, both series continue to advance at 20%-plus levels on a year-over-year basis. That’s a strong signal for thinking that housing recovery remains intact.
The (Really) High Price Of Active Management
It’s no secret that indexing is considerably less expensive than active management. It’s also well established that indexing’s lower price tag often provides a considerable performance advantage when measured over time. As it turns out, the drag from higher active fees is far larger than generally known. A recent article by consultant/strategist Charlie Ellis (author of the must-read book Winning the Loser’s Game