The AP details the "best in 25+ year" run of the leading economic indicators that still somehow managed to disappoint:
A private forecast of economic activity over the next six months edged up less than expected in October, signaling slow, bumpy growth next year.Taking a look at the details of that 7 month run, we see that October was a downside outlier in terms of performance (less "upside" in aggregate and consumer expectations / building permits causing a drag).
The Conference Board said Thursday that its index of leading economic indicators rose 0.3 percent last month. Economists polled by Thomson Reuters had expected an 0.5 percent gain.
The index climbed 1 percent in September.
"We're still getting some positive momentum, but it looks like things are slowing down again," said Jennifer Lee, economist at BMO Capital Markets. "A lot of the economic growth has largely been driven by the government stimulus packages."
The government's Cash for Clunkers program boosted the auto sector and consumer spending, while tax credits for homebuyers have propped up the housing market.
Still, the indicators have risen for seven straight months. The Conference Board said last month that the 5.7 growth rate in the six months through September was the strongest since 1983. That ticked down to 5 percent growth in the six months through October.
Another disappointment is the performance of the indicators less the HUGE contribution of the interest rate spread (i.e. the steepness of the yield curve), which actually printed a negative number in October.
Why exclude interest rate spread? While the spread still relays the current monetary policy (i.e. when the yield curve is steep, the Fed is typically adding liquidity to the system which drives growth), this becomes less relevant when individuals and business aren't utilizing that liquidity (i.e. borrowing) to invest in "actual" economic activity. Instead we see that the liquidity is just being used to drive up prices of already rich, but not yielding 0% assets and/or to recapitalize a beaten down, but not yet out banking system.
Source: Conference Board
VERY nicely done. It's bothered me for a while that all the LI including monetary and market indicators that are o.k. but dicey in normal cycles.
ReplyDeleteThis, as you've noticed, ain't normal. We're in a turbulent period where de-coding the standard indicators and tells back to root causes is critically important (a point central to my next newsletter which I'll promise to put you to sleep with).
never puts me to sleep. just requires lots of focus!
ReplyDelete