In the upcoming update for August, set to be released on September 23, the three-month average of the Chicago Fed National Activity Index (CFNAI) is anticipated to rise slightly to -0.11, according to The Capital Spectator’s econometric forecast. The previous estimate for July stood at -0.15. Values under -0.70 suggest an “increasing likelihood” that a recession has commenced, based on guidelines from the Chicago Fed. The current estimate suggests that CFNAI’s three-month average will remain within a range typically associated with economic growth, even if it reflects a below-trend rate.
The anticipated significant revision aimed at correcting last week’s computer error in the calculation of initial jobless claims was absent in today’s update. Perhaps next week will provide clarity. In the meantime, today’s figures continue to reveal a labor market that is producing fewer jobless claims over time. However, this could be a mere illusion, and we may soon be forced to face the realities of the job market. Let’s consider the current data as a potentially valid reflection of economic trends.
Yesterday, the Federal Reserve’s unexpected decision to postpone the tapering of its asset purchases reflects its ongoing caution regarding the economic outlook. While the central bank acknowledges that “economic activity has been expanding at a moderate pace,” the Federal Open Market Committee emphasized in its statement that it wishes to “await more evidence that progress will be sustained.” Current data strongly supports the notion that the latest economic activity metrics indicate a low risk of a business cycle downturn. Today’s updates from the Economic Trend Index (ETI) and the Momentum Index (EMI) show values significantly above the thresholds that would indicate danger, suggesting that the NBER is unlikely to declare August as the beginning of a new recession.
According to a report from the US Census Bureau, housing starts increased slightly in August to 891,000 from July’s figure of 881,000 (seasonally adjusted annual rate) reports. While this uptick falls short of consensus forecasts, it aligns with The Capital Spectator’s prior econometric projection (see yesterday’s preview). A downward revision to the initial estimate for July allowed for a slight month-over-month increase. Nonetheless, higher interest rates are clearly presenting challenges for the housing market.
The Federal Reserve is anticipated to announce later today its intention to begin tapering its $85 billion-a-month bond-buying program. Unsurprisingly, opinions vary widely regarding the appropriateness of this potential policy shift. Some argue that it is premature to reduce monetary stimulus given the economy’s fragile state, particularly in terms of employment. Conversely, others hold that tightening monetary policy is overdue in order to manage inflationary pressures following five years of considerable stimulus. What remains clear is that inflation expectations are presently stable and low, along with indications of an improving macroeconomic outlook, which suggests the Fed may consider a gradual change in policy.
The forecast for housing starts in the upcoming update for August predicts a total of 889,000, based on The Capital Spectator’s econometric model (seasonally adjusted annual rate). This figure represents a slight decrease from the previously reported total of 896,000 for July. In contrast, numerous consensus forecasts derived from economist surveys expect a modest increase in August housing starts compared to the previous month.
The trend in the US economy indicates a strong position well above levels indicating imminent risk to the business cycle, as per a markets-based evaluation of macroeconomic conditions. The Macro-Markets Risk Index (MMRI) closed at 9.3% on Monday, September 16—a figure that suggests low business cycle risk. Although this 9.3% measurement is among the lowest seen in 2013, it still reflects a secure position above the danger threshold of 0%. A decline below 0% would signal heightened recession risk, whereas values above 0% indicate a favorable bias toward economic growth.
Industrial production experienced a noteworthy rebound in August, following a stagnant performance in July, according to a report from the Federal Reserve reports. The 0.4% growth recorded for last month slightly surpasses The Capital Spectator’s average forecast for August, which was published on Friday. More significantly, this growth translates into a strong year-over-year increase of 2.7% up to August, a considerable rise from the 1.4% annual growth seen in July. This is an encouraging sign that industrial output is not slipping into a phase of significant decline, despite prior indications that may have suggested otherwise.
Recently reported news regarding the Dow Jones Industrials Average’s change in stock lineup prompted some analysts to suggest that monitoring indices as benchmarks for investment strategies is ultimately futile. This viewpoint arises from the belief that the Dow Jones and similar indices are not truly passive benchmarks, thereby rendering portfolio comparisons with these metrics misguided. However, there are several issues with this perspective worth considering.
● Average Is Over: Powering America Beyond the Age of the Great Stagnation
By Tyler Cowen
Interview with author via NPR
In his latest book, economist Tyler Cowen addresses America’s income inequality and advises readers to adjust their expectations. In “Average Is Over,” Cowen predicts significant shifts in the U.S. economy, stating, “I think we’ll see a thinning out of the middle class. We’ll see a lot of individuals rising up to much greater wealth. And we’ll also see more individuals clustering in a kind of lower-middle class existence.”
The current economic landscape presents various trends that merit close observation. Key indicators, such as the Chicago Fed National Activity Index, jobless claims, and industrial production, provide insights into the state of the economy. While some areas reveal growth potential, others indicate challenges that could influence future developments. Understanding these trends is essential for navigating the complexities of today’s economic environment.
