In August, the U.S. economy showed signs of a slowdown, as indicated by the latest update from the Chicago Fed National Activity Index (CFNAI), which aggregates 85 different indicators. While this downturn is noteworthy, it does not yet signify the onset of a recession; a warning flag would only be raised if the CFNAI’s three-month moving average drops to -0.70 or lower. As of August, this average stands at -0.47, a decline from -0.27 in July. Although the trend indicates some weakness, it is not yet dire.
Despite challenges in the global economy, positive sentiment continues to dominate in capital and commodity markets. All major asset classes represented by our list of ETF proxies have recorded commendable gains in recent weeks and since the beginning of the year up to September 21. In other words, signs of loss are currently absent.
● Paying the Price: Ending the Great Recession and Beginning a New American Century
By Mark Zandi
Interview with the author on Bloomberg TV (Sep 17) discusses the U.S. economy’s need for more stimulus. Zandi, chief economist at Moody’s Analytics, evaluates federal stimulus efforts, the U.S. budget deficit, and Federal Reserve policies alongside Trish Regan on Bloomberg’s “Street Smart.”
In portfolio management, after asset allocation and rebalancing, the next critical step is to form reasonable assumptions regarding risk premiums. These three elements are closely interrelated, and assessing one often requires analyzing the others. While forecasting remains a daunting task, it is an essential part of the investment process. Investing inherently involves making predictions about the future, and therefore, formulating assumptions is an integral part of navigating the financial landscape.
Today’s jobless claims update indicates a slight dip, prompting The Capital Spectator to revise its nowcast for third-quarter GDP to a real annualized growth of 1.92%, down from the previous estimate of 1.93%. This marginal decline suggests stability, as it reflects continued sluggish growth. Nonetheless, it represents an improvement over the 1.7% growth rate for Q2, confirmed by the Bureau of Economic Analysis.
New jobless benefit claims saw a slight decrease last week, but the broader picture reveals that new claims are once again stuck. Given the noise in the weekly data, it’s challenging to gauge the true trend. Over the past few months, the reduction of claims has slowed significantly, leading some to question the current situation. Yet, it remains premature to assume the worst, as year-over-year changes in unadjusted claims continue to decline.
The Capital Spectator’s latest nowcast for third-quarter GDP has slightly adjusted down to a real annualized growth of 1.93%, a minor decline from the earlier estimate of 1.95%. This essentially indicates stability in the economic outlook, with persistent sluggish growth. Nonetheless, it shows a modest improvement over the reported 1.7% growth for Q2.
The housing market showed some sluggishness in August, though today’s monthly update may reflect noise rather than significant trends. According to the latest residential construction data from the Census Bureau, new building permits in August decreased modestly by 1.0% compared to July, while new housing starts rose by 2.3%. Although the figures are not particularly encouraging, they also don’t raise major concerns. When examining the annual trend, the data still suggest potential for growth in the upcoming months.
Numerous analysts are once again suggesting that we may currently be experiencing a recession. Whether this is accurate remains uncertain due to the limited economic data available for the present context. The economic situation for September remains largely unclear as we await more information. Nevertheless, a review of the data available through August is beneficial for understanding our position in the business cycle and anticipating future developments.
The recent updates on industrial production and retail sales for August, along with ongoing shifts in market indicators, allow for adjustments in The Capital Spectator’s 10-factor GDP nowcast (refer to this post for methodology details). The current nowcast projects Q3:2012 GDP growth at just under 2.0% in real annualized terms, a decrease from the prior expectation of +2.3%. The government will release its first Q3 GDP estimate on October 26.
### Conclusion
The articles from The Capital Spectator provide a snapshot of the U.S. economic landscape in late 2012, highlighting key indicators such as the CFNAI, jobless claims, and housing trends. Despite signs of slowing momentum, optimism in capital markets persists, illustrating the complexity of analyzing and forecasting economic conditions. The ongoing developments will continue to be closely monitored as we assess future growth opportunities.
