Leading Economic Indicators Still Slouching Despite Current Conditions
Without a doubt, Q4 ended up a bit more resilient than many if not most economic forecasters and laypeople had expected, with Christmas sales holding up smartly.
It does not go unnoticed that heading into Q4, some inflexible ideologues in Washington who have been willing again and again to put their agenda ahead of the common good were far less vocal after August; also, heading into December, perhaps the most critical shopping month of the year, Europe appeared to have started getting its act together, taking doom and gloom off the front pages. Both of these turn of events coming together between September and now have perhaps added as much as 2% annualized GDP to our growth here in the US - far from insignificant.
But the business cycle remains.
An upswing in economic activity over the course of 3-6 months that could be directly attributable to an appreciably improved environment, while very encouraging, is often still not much more than statistical noise on a long-term chart of the business cycle.
The following are two charts of leading economic indicators, the first, gasoline sales, is a single economic indicator in isolation. The second, the Economic Cycle Research Institute's Leading Economic Index, is a basket of leading indicators, looked at as a whole.
US Gasoline Sales Per Capita vs. Price
Credit: Doug Short http://www.advisorperspectives.com
5-Year ECRI WLI
Credit: ECRI http://www.http://www.businesscycle.com
Two things to point out from the images above:
1. In our oil world, per capita gasoline sales tend to roll over and start a persistent decline before new recessions, and
2. The ECRI Weekly Leading Index has not rebounded as it did before the end of the Great Recession, nor like it did before the end of the 2010 double dip scare. In fact, its growth rate is now languishing at levels that over the course of several decades of its history (not shown here), invariably presage new recessions by zero months to a year, when persistent (ECRI growth rate levels persistently below about -7%).