A status report on the US economy. What lies ahead for us?

Summary: Today we again look at the US economy. What’s happening? What does it tell us about the future?

Recent US economic data is confused far more than usual. For several months we have seen contradictory economic statistics (more so than usual). The economic signals different drastically in magnitude, and often directionally as well.

US GDP for Q4 was unchanged (ie, –0.1% annualized).
Several Fed surveys were weak in December (eg, Chicago National Index).
Two US consumer confidence surveys were released: one fell in January , one rose.
The Chicago regional and national ISM purchasing manager surveys for January were strong.
January’s employment report: household survey shows almost no job growth in Dec & Jan, the establishment survey shows a steady but slowing rise (+247k in Nov, +196k in Dec, +157k in Jan).
The four economic indicators used by the Business Cycle Dating Committee’s National Bureau Economic Research all show continued slow growth (a pick-up from the Fall slowdown).

The global picture is just as confused.

The OECD’s Composite Leading Indicators (best of the bunch, IMO) showed slow growth in November, as it has since Summer 2011.
China two PMI’s for January were released: down a little and up a lot (HSBC).
The global manufacturing purchasing manager index (PMI) was up slightly in January, and has been flattish for over a year.
The PMIs for the peripheral nations of Europe remain in a contractionary spiral (eg, Greece, Italy, Spain) — and some others as well, such as France.

About the future

Most economists make the smart bet, predicting that both the US and world economy will continue to grow slowly (ie, things in motion continue in motion).

What about the contrary signs? Rather than fit them into a coherent picture, most economists wave them away. That’s usually the correct choice, but also why the consensus of economists has never predicted a recession in advance, and often not even after it has started.

While successfully predicting the business cycle was never easy, it has become more difficult. Future historians will draw a line sometime in the annals of the 1990s and say “here ended the post-WWII era”. So many of the assumptions economists’ models rely upon — the patterns, averages, correlations, etc — have changed. The coming political and economic structures will render existing models into useless curiosities.

For details about this process see:

This financial crisis is the transition to a new world; like birth, it is painful, 11 February 2009
It’s the end of the world we’ve known since WWII, 29 June 2012

The driver of our recovery

While the future remains uncertain, two things about the past are clear. First, the steady growth of the economy since Spring 2009 — despite the warnings of so many conservatives (who consider Keynesian economics obviously wrong, despite its demonstrated predictive power). Second, the cost of the recovery: $6.4 trillion in new Federal public debt since the recession began in December 2007. That’s a 225% increase, $1.2 trillion per year.

What’s the effect of so many years of fiscal and monetary stimulus? That’s the subject of the next post.

For More Information

Posts about the US business cycle: