The discussion surrounding peak oil has recently subsided, and there are reasons for this shift: concrete evidence of an actual peak in oil production is still elusive. However, this does not imply that the global supply of crude oil is not a pressing concern; on the contrary, it remains a significant issue. Currently, the statistical data supporting the assertion that global oil output has reached its limit—or is about to—seems rather weak.
The case for anticipating sluggish growth in the third quarter continues. Today’s update from The Capital Spectator’s set of nowcasts for Q3 real GDP shows steady figures compared to previous updates from September 30. These current numbers incorporate the latest economic figures released for several September indicators, which still suggest a slow growth trajectory for the economy (see here and here, for instance). The models indicate that when the government publishes the official GDP report for Q3 on October 26, the likelihood still leans towards expecting a slightly improved real (inflation-adjusted) annualized change compared to the sluggish 1.3% growth reported for Q3. This outlook is bolstered by the incoming data for September, which helps estimate the overall economic trend (as we discussed earlier today), indicating that there is still momentum in the economy, while recession risks appear low according to the latest available figures.
The data published thus far in September indicates that the U.S. economy continues to expand. While this expansion remains sluggish, it is still growth. Among the eight September indicators assessed for The Capital Spectator Economic Trend Index (CS-ETI), six are showing positive trends. This suggests that the risk of recession remained low last month. However, these readings are based on incomplete data. Once the remaining indicators for CS-ETI are updated for September, we will gain a clearer understanding of the broader economic trend. For the moment, the indicators are looking promising. Notably, one of September’s indicators—the ISM Manufacturing Index—has shown positive movement for the first time since May, as we discussed last week. This positive shift, along with a lack of negative revisions in the other updated indicators, suggests that September’s economic outlook is somewhat brighter than that of August. Nevertheless, with several September updates still pending, it is prudent to reserve judgment in the current climate.
● Bull by the Horns: Fighting to Save Main Street from Wall Street and Wall Street from Itself
By Sheila Bair
Review via Real Clear Markets
In her latest book, “Bull By the Horns,” former FDIC chair Sheila Bair delves into a range of policy debates that transpired during her tenure from 2006 to 2011. She has rightfully garnered praise for guiding the FDIC through the crisis and notably for being among the first to identify the foreclosure crisis, calling for needed policy action. A concise summary of “Bull By the Horns” is that numerous mistakes were made during the crisis – primarily by others. Current Treasury Secretary Timothy Geithner faces particularly pointed criticism, a notable aspect of the book given the well-known tensions between the two officials.
September saw continued sluggish growth in employment, according to a report from the government. Private payrolls rose by 104,000 last month, as per the Labor Department’s establishment survey. (Total payrolls, which include government jobs, increased by 114,000.) This represents an improvement from August’s revised gain of 97,000 in the private sector, but these numbers are unlikely to impress anyone. However, there’s no pressing evidence to indicate that the labor market is collapsing. It may be experiencing a slow decline, but currently, a private-sector job growth of 104,000 does not suggest the economy is in recession, even if a downturn could be a possibility in the near future. Similarly, the 1.7% year-over-year growth in private payrolls does not imply an imminent crisis. It would be a different scenario if the September data from other sources were screaming of a downward spiral, but this is not the case (see here and here, for instance).
Jobless claims increased slightly last week, yet the overall declining trend remains intact. New applications for unemployment benefits rose by 4,000 to a seasonally adjusted 367,000 for the final week of September. More crucially, the substantial drop reported a week earlier remains consistent and claims continue to decrease each week compared to year-ago levels.
The services sector continued to grow in September, as reported by the Institute for Supply Management. Their Non-Manufacturing Index increased to 55.1 last month, up from August’s 53.7. This suggests that the services sector as a whole experienced faster growth in September, according to ISM. This provides further evidence that the U.S. economy continued its expansion last month. Indeed, with today’s ADP Employment Report and Monday’s release of the September update of the ISM Manufacturing Index, we now have three indicators that collectively suggest last month did not mark the onset of a new recession.
Private non-farm payrolls rose by 162,000 last month, as per today’s ADP Employment update for September. This figure is a decline from August’s revised gain of 189,000, prompting caution regarding expectations for Friday’s official September jobs report from the Labor Department. Nevertheless, there is no distinctly negative indication in today’s data showing that the trend of slow growth reversed last month. In fact, when considering today’s ADP release alongside yesterday’s mild rebound in the ISM Manufacturing Index, the case for September remaining within the growth range appears more robust (once all the month’s data are available).
When I update The Capital Spectator Economic Trend Index (CS-ETI), as I did last week, it’s common for inquiries to arise regarding how to best interpret the data. Specifically, many ask how to convert CS-ETI’s raw numbers into probabilities that help assess recession risk. One effective method of doing this is by employing a probit model.
Senate leaders are working on a plan to avoid mandatory cuts,
The New York Times | Oct 1
discussing a comprehensive approach to address the “fiscal cliff” anticipated in January. They are opting to pursue a bipartisan agreement during a postelection session of Congress, aiming for a long-term deficit reduction solution instead of a short-term fix.
The ongoing trends in economic indicators reflect a complex and evolving landscape. Although challenges remain, the signs of steady but slow growth offer some optimism for the future. Continued attention to these metrics will be essential as we navigate through the upcoming months.
