Recent Economic Trends and Insights
The latest economic data has prompted an optimistic adjustment to our nowcasts for Q3 GDP, with the official report set for release on October 26. This information suggests a likely improvement over the underwhelming 1.3% growth recorded in Q2.
Current Economic Indicators
The September data is nearly finalized, showing an economy that continues to expand. Among the 12 indicators tracked for The Capital Spectator Economic Trend Index (CS-ETI), 9 are exhibiting positive trends. This strongly indicates that the risk of a recession was low last month.
Housing Market Update
Last month marked what may well be regarded as a significant post-recession milestone for the housing market, according to reports from the Census Bureau. These figures challenge the notion that the economy is in a dire downturn. Furthermore, they raise the possibility of an uptick in overall economic growth, a view supported by my recent nowcasts for Q3:2012 GDP (I will provide an update later today). This message is also echoed in the September economic and financial data outlined in The Capital Spectator Economic Trend Index, which I will be updating shortly. The recent housing figures contribute to this overall positive outlook.
Industrial Production Recovery
Industrial production recorded a rebound in September following a sharp decline in August. The Federal Reserve indicated that August’s drop likely stemmed from the temporary disruption caused by Hurricane Isaac. Today’s report confirms that the August decline appears to have been an isolated incident, not the beginning of a cyclical downturn. In fact, industrial production is steadily rising, with a year-over-year increase of 2.8% through last month. This news further supports the low risk of a recession.
Retail Sales Performance
Retail sales also demonstrated robust growth in September, according to the Census Bureau. The 1.1% increase matches the previous month’s revised gain, highlighting that it has been several years since we’ve witnessed consecutive monthly increases of over 1% in retail sales. While this retail update is just one indicator, it reinforces the narrative I’ve been discussing: the economy is steadily progressing, which indicates a low risk of recession. For a comprehensive review of data supporting this view, refer to last week’s updates on The Capital Spectator Economic Trend Index and the Q3 GDP nowcast.
Insights on Wealth Inequality
● Plutocrats: The Rise of the New Global Super-Rich and the Fall of Everyone Else
By Chrystia Freeland
Article by the author via The Atlantic
F. Scott Fitzgerald was correct when he remarked that the wealthy are different from the rest of us. However, today’s ultra-rich differ significantly from their predecessors: more industrious and merit-based, yet increasingly detached from the nations that provided them opportunities, leaving their fellow citizens further behind.
Understanding the Equity Risk Premium
Estimating the equity risk premium—the return on stocks above a “safe” asset like the 10-year Treasury or 3-month T-bill—is central to investment research and portfolio analysis. “It is the ‘number’ that drives everything we do,” asserts Aswath Damodaran, a finance professor at NYU’s Stern School of Business. According to the CFA Institute’s authors on Equity Asset Valuation, the premium “depends strictly on expectations for the future, as investor returns rely solely on an investment’s cash flows.”
Job Market Trends
Some analysts, however, caution against over-optimism. Recently published data indicated that new claims for unemployment benefits dropped to their lowest level since January 2008. While this initially suggests a significant improvement in labor market conditions, doubts regarding the accuracy of the report have surfaced widely.
In an encouraging update, today’s report on weekly jobless claims represents one of the most promising labor market indicators since the conclusion of the Great Recession in June 2009. Regardless of how one characterizes today’s data, it is undoubtedly uplifting. Caution is warranted, given the volatility of this series; however, this development strengthens the argument for ongoing recovery in the labor market and modest economic growth, potentially at an increasing pace. Critics who insist on an imminent recession will need to reassess.
Labor Market Methodology Concerns
Jack Welch has described the September jobs report released last week as “strange” and “implausible.” He argues that sluggish economic growth does not support the reported drop in unemployment from 8.1% in August to 7.8% last month. He claims that the methodology of the household employment survey, which derives the unemployment figures, is flawed. While this criticism holds merit, it’s vital not to dismiss all data based on isolated analyses. Focusing solely on individual data points can lead to an incomplete understanding of the broader economic landscape. Fortunately, the overall outlook appears more favorable than Welch suggests.
Conclusion
As we await the official GDP report, the current indicators paint a picture of gradual economic recovery. With positive trends in various sectors, including housing, industrial production, and retail sales, there are encouraging signs that the economy may not only be stabilizing but potentially poised for growth. Continuous monitoring of labor market dynamics and cautious interpretations of data will be essential in navigating these uncertain times.
