Monday, May 24, 2010

Chicago Fed Index At Highest Level Since 2006

"Led by continued improvements in production- and employment-related indicators, the Chicago Fed National Activity Index increased to +0.29 in April, up from +0.13 in March. April marked the highest level of the index since December 2006 and the third time in the past four months that the index indicated above-average economic activity. Three of the four broad categories of indicators that make up the index made positive contributions in April, while the consumption and housing category made the lone negative contribution.

The index’s three-month moving average, CFNAI-MA3, increased to –0.03 in April from –0.09 in March, reaching its highest level since February 2007. April’s CFNAI-MA3 suggests that growth in national economic activity was very near its historical trend. With the index still slightly below trend, there remains some economic slack, suggesting subdued inflationary pressure from economic activity over the coming year."

MP: More evidence here of the ongoing V-shaped economic recovery. 


At 5/24/2010 8:59 AM, Anonymous morganovich said...

from the release:

"April’s CFNAI-MA3 suggests
that growth in national economic activity was very near its historical trend. With the index still
slightly below trend, there remains some economic slack"

performance slightly below trend after such a steep decline is a sign of a tepid recovery, not a "v" shape.

a "v" shape would have well above trend growth as we made up the massively below growth readings.

looking at % charts like they are actual values can be very misleading.

a move from 0 to -4 then back to 0 is not a sign of recovery, it's a sign of stabilization at a lower level.

only above 0 has recovery even begun. don't mistake the shape of the derivative curve (dy/dx) of a number with the shape of the underlying value.

At 5/24/2010 9:51 AM, Anonymous gettingrational said...

V as in V for Victory over delusional economic status!

Less Consumption and more Manufacturing with resultant higher employment. Let us hope that Exports and Capital Expenditures are the reason. This trend is our friend.

At 5/24/2010 11:28 AM, Blogger Benjamin Cole said...

Die, recession, die, die, die!

At 5/24/2010 3:18 PM, Anonymous morganovich said...

Libor-OIS spreads starting to really accelerate. libor has essentially doubled in 2 months. (albeit still at low rates), but TED gap accelerating and now 6 points over the 30 LT avg which stresses bank balance sheets.

that's going to be a stiff headwind for a recovery.

credit is tightening and money supply is nearing (or already in the case of m3) contraction.

these are not the sorts of signs you see in a robust recovery.

these are signs of a flight to safety.

At 5/24/2010 3:21 PM, Blogger Mark J. Perry said...

Morganovich: Beware of economic-hypochondria."

At 5/24/2010 4:23 PM, Anonymous morganovich said...

dr perry-

good advice. there are certainly loads of perma-bears out there, and you can always find a few stats to make either side of the economic case.

that said, i have a heavy optimistic bias as a small cap investor and VC. believe me, i want to believe in the recovery. i want it to be real. i just don't see the data. the %'s may look encouraging (though GDP is already declining) but that's only due to the easy YOY comparisons. in absolute terms, the economy is still in very rough shape.

we rode a massive wave of government injected liquidity over the last 12 months, and the tide is going back out and leaving a dire bubble of public debt behind it.

i just cannot see how this data looks like a V shaped recovery. it seems more like a tepid dead cat bounce.

inflation adjusted retail sales are back at absolute levels from 2004 even assuming you believe the CPI number. (using a pre clinton calculation, IARS are in the early 1990's)

housing starts are up, but still at an absolute level over 40% below the 1992 trough. foreclosure and underwater mortgages are still a big factor. housing prices are stabilizing, but still far below the peaks.

U-6 remains high. in a strong recovery, it would be heading down by now. unemployment claims are going in the wrong direction in recent weeks, yet it's still difficult to hire and wages are stubbornly high due to the extension of unemployment benefits.

M3 growth is negative. every time that has happened since 1960, there's been a contraction 6 months later. year over year GDP figures will be done with easy comps after june. that's a sinister combo.

the 6 month average of industrial production is at levels from 2002. recent dollar strength isn't going to help.

the fed indexes show slowing future orders now that inventories are normalized.

we face vast deficits at every level of government.

lending rates are rising rapidly (LIBOR) and pushing out the OIS and ted spreads putting stress on banks and financial actors.

europe is precarious (and the PIIGS an accident waiting to happen) and instituting the kinds of austerity programs that will dampen growth in their overly government dependent economies.

the debt and lending markets are telling us they do not trust the euro plan.

china is looking to cool down an overheating economy.

US companies are having a very hard time selling bonds all of a sudden (may on pace to be worst month in a decade)

so, as much as i would love to be able to jump in and ride a recovery, this strikes me as a time to defend my capital, not to go looking for growth based risk assets. fed rates are as low as they can go, but we can't do more than tepid growth and now that QE is winding down, demand for money is punk.

we've thrown everything and the kitchen sink at the recession, but we've just built up a new set of issues and not made a whole lot of progress considering. worse, we've prevented the adjustments in the labor markets that we needed.

i'd love to be wrong about this. thanks for the blog and all the info, analysis and dialogue. the key to being well informed is to always hear both sides of every story and i appreciate your take even if i do not always agree with it.

At 5/24/2010 11:04 PM, Blogger Unknown said...

MP I would like to see a chart on the savings rate

At 5/25/2010 8:19 AM, Anonymous morganovich said...

i also have real fears that we are about to learn a hard lesson about the fact that Keynesian stimulus does not work in the intermediate term.

it's interesting that even the more socialist europeans are seeing a need for austerity while we, benefiting from the flight to safety in our bonds, are turning into such governmental profligates.

"Paychecks from private business shrank to their smallest share of personal income in U.S. history during the first quarter of this year, a USA TODAY analysis of government data finds.

At the same time, government-provided benefits — from Social Security, unemployment insurance, food stamps and other programs — rose to a record high during the first three months of 2010.

Those records reflect a long-term trend accelerated by the recession and the federal stimulus program to counteract the downturn. The result is a major shift in the source of personal income from private wages to government programs.

The trend is not sustainable, says University of Michigan economist Donald Grimes. Reason: The federal government depends on private wages to generate income taxes to pay for its ever-more-expensive programs. Government-generated income is taxed at lower rates or not at all, he says. "This is really important," Grimes says.

The recession has erased 8 million private jobs. Even before the downturn, private wages were eroding because of the substitution of health and pension benefits for taxable salaries.

The Bureau of Economic Analysis reports that individuals received income from all sources — wages, investments, food stamps, etc. — at a $12.2 trillion annual rate in the first quarter.

Key shifts in income this year:

• Private wages. A record-low 41.9% of the nation's personal income came from private wages and salaries in the first quarter, down from 44.6% when the recession began in December 2007.

•Government benefits. Individuals got 17.9% of their income from government programs in the first quarter, up from 14.2% when the recession started. Programs for the elderly, the poor and the unemployed all grew in cost and importance. An additional 9.8% of personal income was paid as wages to government employees. "

At 5/25/2010 8:53 AM, Anonymous morganovich said...

CS home price numbers not looking too hot:

"WASHINGTON (MarketWatch) -- Home prices fell 0.5% in March compared with February in 20 major U.S. cities, according to the Case-Shiller home price index released Tuesday by Standard & Poor's. However, prices were up 2.3% in the past year, the second consecutive gain. On a not-seasonally adjusted basis, prices fell in 13 of 20 cities in March compared with February. "The housing market may be in better shape than this time last year; but, when you look at recent trends there are signs of some renewed weakening in home prices," said David Blitzer, chairman of the index committee at Standard & Poor's, in a statement"


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