Economic status report: good news plus chaff from doomsters.

Summary:  Today we look at the latest economic data, drawing an important conclusion — listening to doomsters leads to mistakes. You’ll learn little from them, and can never recover those lost minutes of your life. The economic picture remains mixed. I forecast slowing with some chance of confusion. A recession looms in the distance, still beyond our sight but too close to ignore.  {2nd post of 2 today.}

Contents

1. Fearful World Trade numbers?
2. Another day, another Fed survey
3. Are new homes crashing down on us?
4. A blizzard of PMIs
5. One Indicator to rule them all
6. Conclusions
7. For More Information

(1)  Fearful World Trade numbers?

ZeroHedge echos with their usual dark spin: “Global Trade Volume Tumbles Most Since 2011; Biggest Value Plunge Since Lehman.” They refer to the invaluable CPR World Trade Monitor for January. Trade volume was –1.4% in January; but December was +1.3%. That’s why the CPB staff warns that the monthly numbers are volatile and not seasonally adjusted, and so suggests that people focus instead on the 3 month moving average.  See the below graph of YoY changes in the 3-month average. Like so many economic indicators, it’s growing at a slow steady rate.  Ignore the doomsters.  

(2)  Another day, another regional Fed survey

Looking at individual regional Fed surveys guarantees confusion. As we see at ZeroHedge: “Richmond Fed Manufacturing Survey Collapses To 2-Year Lows.” Yes, but that’s hardly pants-wetting data. What does this number mean? The Richmond Fed explains: “Each index equals the percentage of responding firms reporting increase minus the percentage reporting decrease. Data are seasonally adjusted. Results are based on responses from 102 firms.” It’s a datapoint, but not an especially useful one. All economic statistics are not of equal significance! Also, the same metric for the much-larger service sector looks shinier:

(3)  Are new homes crashing down on us?

ZeroHedge goes into full denial mode: “New Home Sales Data Goes Full Retard With Report Frozen Northeast Saw 153% Surge.” Closing your eyes to contrary economic data works as well as it does on the highway. See the report for yourself.

(4)  A blizzard of numbers from the world’s purchasing managers

Markit conducts surveys of the world’s purchasing managers, generating a monthly blizzard of usually confusing numbers. Careful selection produces clickbait heaven of confusing news headlines. Just today we got “U.S. Manufacturing PMI hits five-month high in March“, prompting the ZH spin “US Manufacturing PMI ‘Survey’ Defies Every Hard Data Print In Last 7 Weeks, Jumps To 5-Month Highs.” Plus “Eurozone growth gathers momentum as PMI nears four-year high“, “Operating conditions deteriorate slightly in March” (to an 11 month low), and Japan’s “Production growth slows to weakest since October 2014.” My take on all this: it nets out to small change.

(5)  One Indicator to rule them all

There is none. But here’s my favorite global activity indicator, balancing reliability and timeliness:  the OECD’s Composite Leading Indicator.  The March graph: not too exciting, not too bad (see the report for regional and national trends). That sums it up, a picture contrary to that painted by both the doomsters and the permabulls.

(6)  Conclusion

There are signs of slowing in the US, Japan, and China — offset by stronger growth in Europe. It adds up to continued steady slow growth, which is nothing to cry about. It provides little cushion not just against the inevitable shocks but also risks slowdowns below “stall speed” becoming recessions. With so many governments already running moderate to strong stimulus programs, fighting a downturn might prove difficult — unless, as I expect, they go full unconventional. We’re already in a new world — seen in the widespread zero interest rates and some negative rates. A recession would take us decisively and irrevocably into a new economic regime. What might that look like? That’s a subject for another day.

(7)  For More Information

If you liked this post, like us on Facebook and follow us on Twitter. See all posts about economics, monetary policy, and stimulus programs. Of special interest are these about the state of the economy:

1. Dreams of a boom fade & attention turns to secular stagnation.
2. How close are we to the next recession? — More indicators.
3. Status report on the US economy: darkening sky, rough waves ahead.
4. Highlights of the jobs report, the good news & the bad.
5. New economic data only deepens the mystery.
6. Updating the recession watch; & what might the government do to fight a slowdown?