Monday, July 23, 2012

Monday Economic Updates

1.The Chicago Fed’s 85-variable “National Activity Index” improved in June, and provides no evidence of a U.S. recession, see chart above and read more here.


2. Comerica Bank's "Michigan Economic Activity Index" climbed in May to the highest level since early 2005, see chart above. Further, building permits issued in Michigan during the month of May were the highest since October 2007.  Read more here about Michigan's economic recovery.

3. Minneapolis-St. Paul is the latest metro area with a sizzling June real estate report: Home sales increased 13.8%, pending sales increased 16%, the median sales price increased by 10.7% to almost a four-year high of $179,500, average time on the market fell to a six-year low of 113 days, and the "percent of original list price received" increased to almost a five-year high of 96.1%. 

30 Comments:

At 7/23/2012 2:40 PM, Blogger Jon Murphy said...

Something else that is important to note in the Chicago Fed National Activity Index: a reading below 0 DOES NOT indicate economic activity is falling or even slowing. All it means is that growth is below the historical trend.

 
At 7/23/2012 2:52 PM, Blogger bart said...

The Philadephia Fed Index is much closer to recession levels, and has been in a down trend since 2010

 
At 7/23/2012 2:53 PM, Blogger Jon Murphy said...

One other bit of bonus analysis:

The Chicago Fed National Activity Index had a three quarter (9 month) lead time to the US economy. What this indicator is pointing to on ongoing economic expansion though the first half of 2013. This is consistent with what the US Leading Indicator (Conference Board) and Purchasing Managers Index (ISM) are telling us.

 
At 7/23/2012 2:55 PM, Blogger Jon Murphy said...

One point Bart (and I am not discounting your chart because it is important), but the Philadelphia Index is a regional index whereas the ChiFed Index is a national one.

 
At 7/23/2012 3:03 PM, Blogger Mark J. Perry said...

Note: The Philadelphia Fed Index is survey-based manufacturing index for the Philadelphia Fed region: New Jersey, Delaware, and the eastern 2/3 of PA, not exactly the manufacturing powerhouse area of America.

The CFNAI is an 85-variable composite index for the entire national economy.

 
At 7/23/2012 3:14 PM, Blogger bart said...

Per my work, the Philly Fed index does a better job over its history of forecasting recessions. It leads the CFNAI.

Jon, we also disagree about the ISM. It looks bearish from here, NMI too (both show predominantly below zero YoY change rates for over a year).

China and the Euro area are down, and it's unlikely at best that they won't affect the US.

GDP is already shrinking when the more accurate CPPI is used as a deflator - aka stagflation.

U7b unemployment remains at recession levels, and is rising.

Total money supply data is barely expanding, and down trending.

 
At 7/23/2012 3:19 PM, Blogger Mark J. Perry said...

If you look at the last seven U.S. recessions, they ALL happened when the CFNAI-MA3 was at or below -0.70. A June reading of -0.15, especially because it was an increase from May, means that there is about 0% probability of a recession right now.

 
At 7/23/2012 3:25 PM, Blogger bart said...

Fair enough about the -.7 and true too, but the trends of both it and the Philly Fed (and all the other items I noted above) are not encouraging.

Additionally, some work of mine based on a modified algo (based on the 10 year 3 month spread and monetary base) from NTRS has been pointing at one for a while... and it hasn't been wrong once (or had a false signal) since 1959.

 
At 7/23/2012 3:31 PM, Blogger Jon Murphy said...

It looks bearish from here, NMI too (both show predominantly below zero YoY change rates for over a year).

Actually, I do agree with you on the PMI. It is starting to look bearish.

China and the Euro area are down, and it's unlikely at best that they won't affect the US.

GDP is already shrinking when the more accurate CPPI is used as a deflator - aka stagflation.

U7b unemployment remains at recession levels, and is rising.

Total money supply data is barely expanding, and down trending.


One thing we can definitely agree on: there are worrying signals popping up for 2013.

Feel free to disagree with me, but I think a recession beginning in late 2013/early 2014 is now inevitable. The only question is how bad will it be.

 
At 7/23/2012 3:53 PM, Blogger bart said...

Feel free to disagree with me, but I think a recession beginning in late 2013/early 2014 is now inevitable. The only question is how bad will it be.

We agree in principle, but my guess is it will start much sooner.

Would that my algo that has been 100% right and without false signals since 1959 wasn't broken by not knowing how to treat the massive amount of excess reserves that's in monetary base, otherwise I'd give you a month and year start date.

I called the start of the last one for Oct or Nov, and it started officially in Dec.

And I think I've managed to almost avoid talking about the poor algos that the NBER uses, and "data quality". -g-

 
At 7/23/2012 3:57 PM, Blogger Jon Murphy said...

We agree in principle, but my guess is it will start much sooner.

Yeah, I figured as much haha.

Question: What do you think will happen in Europe when the recession hits? Eurozone dissolves? It somehow manages to stick together?

I'm just asking for friendly conversation. I promise I will not hold you to your answer and in a year-to-a-year-and-a-half go "HA! YOU WERE WRONG!"

 
At 7/23/2012 4:24 PM, Blogger bart said...

Yeah, I figured as much haha.

Damn... it's hell being that transparent. -g-


Question: What do you think will happen in Europe when the recession hits? Eurozone dissolves? It somehow manages to stick together?

I'm pretty lousy prediction wise in the political areas, and have changed my mind about once a month for years... but my current thought is that the Eurozone will remain but the current member composition won't. Greece pretty much must exit, with some other smaller countries too.
Turkey is a huge wild card for me, same with Italy.


My current preference is that Germany should exit, and would likely be followed by a few others. There's no way that they can "win", given the gigantic cultural and economic differences.

Perhaps a North and South Eurozone could be workable too, especially given some similarities between now there and the US in the late 1850s, and the very long track history of wars and civil wars in the Euro area.




I'm just asking for friendly conversation. I promise I will not hold you to your answer and in a year-to-a-year-and-a-half go "HA! YOU WERE WRONG!"

LOL - you HAVE been on the intertubes for a while! *g*

 
At 7/23/2012 4:57 PM, Blogger Jon Murphy said...

LOL - you HAVE been on the intertubes for a while! *g*

Lol fine, I won't do it for this particular item!

 
At 7/23/2012 5:12 PM, Blogger Mark J. Perry said...

I'm highly doubtful that a survey-based measure of regional manufacturing in fewer than three states would have any predictive power for determining U.S. business cycles and recessions.

Delaware and New Jersey aren't even manufacturing-based states; their manufacturing employment shares of total payrolls is about 6%, compared to 9% of U.S. payrolls in manufacturing. PA is closer to the U.S. average, but only about 2/3 of the state is included in the Philly Fed region.

I think I'd go back to the drawing board on this one...

 
At 7/23/2012 5:41 PM, Blogger bart said...

Fair enough.

I wish I had time to build a chart showing the Philly Fed, CFNAI and recessions to show what my work indicated. Maybe later this week.

 
At 7/23/2012 5:53 PM, Blogger Jon Murphy said...

I wish I had time to build a chart showing the Philly Fed, CFNAI and recessions to show what my work indicated. Maybe later this week.

For $20, I'll do it.

By the way Dr. Perry, sometimes the small sectors can provide economic signals. It depends on their characteristics, but they can provide some insights. Energy production is a good example this.

 
At 7/23/2012 6:31 PM, Blogger arbitrage789 said...

If we ARE going off the fiscal cliff, like Patty Murray wants us to, the employment numbers are unlikely to rev up any time soon

 
At 7/23/2012 6:33 PM, Blogger arbitrage789 said...

Jon Murphy said

"What do you think will happen in Europe when the recession hits? Eurozone dissolves? It somehow manages to stick together?
______________

Angela Merkel just LOVES bailouts. She'll keep 'em coming 'till the cows come home

 
At 7/23/2012 6:36 PM, Blogger bart said...

For $20, I'll do it.

I'll be happy to accept your $20 for building one chart for me... shall I offer you a discount for all 1500 charts I create every week?


Yeah, I know "Shirley you jest" (reference - quote from the movie "Airplane", just in case you're too young to have seen it -g-)

 
At 7/23/2012 6:53 PM, Blogger Jon Murphy said...

Yeah, I know "Shirley you jest"

I do not jest. And don't call me Shirley.

I love that movie

 
At 7/23/2012 6:57 PM, Blogger bart said...

I love that movie

I had a hunch... and not related to my back.

-insert rimshots to taste-

 
At 7/23/2012 6:59 PM, Blogger Jon Murphy said...

I had a hunch...

Young Frankenstein reference?

 
At 7/23/2012 7:03 PM, Blogger Benjamin said...

Tepid growth, courtesy of a dithering, feeble Fed policy.

The Fed is the the Japan thing: Extremely controlled growth, to bring inflation in under 2 percent. In Japan they shot for zero, so be thankful for small favors.

 
At 7/23/2012 7:27 PM, Blogger bart said...

Young Frankenstein reference?


Moi???

It's twoo, it's twoo...

 
At 7/23/2012 7:31 PM, Blogger Jon Murphy said...

It's twoo, it's twoo...

Ok, that one I don't get

 
At 7/23/2012 7:40 PM, Blogger bart said...

Ok, that one I don't get

"Blazing Saddles", the part where Lily von Shtupp is attempting to seduce the ('african american') sheriff in her room backstage.

"Tell me, is it twoo what they say about you guys?"

"Oooooh, it's twoo! It's TWOO! IT'S TWOO!"

 
At 7/23/2012 8:42 PM, Blogger Jon Murphy said...

oooh hahaha! God, that's a great movie!

 
At 7/24/2012 4:02 PM, Blogger bart said...

Here's part of my work on recessions and the Philadelphia Fed Index. As can be seen, we're already below where 5 of the last 7 recessions started, and the Philly Fed Index leads the CFNAI most of the time.


Recessions & current business conditions

 
At 7/24/2012 4:05 PM, Blogger Jon Murphy said...

Hey Bart-

Can you shoot me an email when you have some time? I ran a few statistics using your CPPI and I have some questions:

jmurphy8289@gmail.com

 
At 7/24/2012 4:16 PM, Blogger bart said...

Wilco Jon, just playing catchup after an extraordinarily odd and busy day.


Philly Fed: State Coincident Indexes show weakness

 

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