Q2 Economic Growth Any Better?

 The Mortgage Corner

The initial estimate of first quarter 2024 Gross Domestic Product (GDP) growth was less than expected (1.6%), causing financial markets to panic, even though economic growth is better than the initial estimate is reporting, I said last week.

What did Wall Street expect with the current domestic unrest and geopolitical uncertainty? Consumers are shopping less, and as conflicted as economic forecasters in predicting what will happen next.

The Conference Board’s just released Index of Leading Indicators (LEI) for April that attempts to predict future growth, was also conflicted.

“Another decline in the U.S. LEI confirms that softer economic conditions lay ahead,” said Justyna Zabinska-La Monica, Senior Manager, Business Cycle Indicators, at The Conference Board. “Deterioration in consumers’ outlook on business conditions, weaker new orders, a negative yield spread, and a drop in new building permits fueled April’s decline.”

ConferenceBoard

Key figures are the interest rate spread and decline in building permits for private housing, because short-term interest rates are still too high in relation to longer-term rates. The Fed isn’t cutting their Fed Funds overnight rate yet, which has in turn has boosted the Prime Rate charged by most lenders to 8.5 percent and 30-year fixed mortgage rate above 7%.

But at the same time the LEI said in the six-month period between October 2023 and April 2024, the LEI contracted by -1.9 percent—a smaller decrease than its -3.5 percent decline over the previous six months, hence the blue line in its graph showed improvement while GDP black line in graph declined slightly from last year’s +3 percent growth rate.

Even consumers are becoming discouraged in the latest consumer surveys and have curbed their spending ways with retail sales unchanged last month. Sales are not adjusted for inflation, so sales couldn’t keep up with inflation.

Whereas, Q2 GDP growth estimates have been as high as 4 percent.

The Atlanta Federal Reserve’s GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2024 was reduced to 3.6 percent on May 16, down from 3.8 percent on May 15. It was briefly above 4 percent.

That is still above Blue-Chip economists’ estimates that have hovered between 1 to 3 percent.

AtlantaFed

Why does it make a difference? Higher growth is needed because the US and most of the EU countries are now gearing up for war as well as peace. NATO is getting involved by announcing they might send their soldiers to train Ukrainians on the front lines to stem the Russian advance, while China is allying more closely with Russia.

Housing is predicted to make a comeback despite high building costs and mortgage rates, per NAR Chief Economist Lawrence Yun in his latest update. He forecasts that interest rates will fall in the long term, 2024 existing-home sales will rise to 4.46 million (up 9% from 4.09 million in 2023) and 2025 existing-home sales will increase to 5.05 million (up 13.2% from 2024)

Yun also said that rents will calm down further, which will hold down the consumer price index (CPI) and encourage the Federal Reserve cut interest rates. He said that based on April's employment data, there are six million more jobs compared to the pre-Covid highs, and jobs are boosting home prices.

"More jobs mean more home sales and higher housing demand," said Yun. "You need a strong local economy for a strong housing market."

So Realtors are also seeing an upsurge in activity that should boost economic growth in 2024.

Harlan Green © 2024

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Elevated Rates Endangering Economy

 Financial FAQs

Early predictions show first quarter economic growth picking up, but a little-known indicator of future growth, the Conference Board’s Index of Leading Economic Indicators (LEI) in March highlighted the danger that high interest rates hold for future growth.

The LEI’s year-over-year growth remains negative, but is on an upward trend

ConferenceBoard

“Overall, the Index points to a fragile—even if not recessionary—outlook for the U.S. economy. Indeed, rising consumer debt, elevated interest rates, and persistent inflation pressures continue to pose risks to economic activity in 2024,” said Justyna Zabinska-La Monica, Senior Manager, Business Cycle Indicators, at The Conference Board.

And the Atlanta Federal reserve boosted their GDPNow estimate of Q1 growth once again.

“The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2024 is 2.9 percent on April 16, up from 2.8 percent on April 15, after the increase of first-quarter real personal consumption expenditures growth and first-quarter real gross private domestic investment growth.”

We know why elevated interest rates pose a danger to growth. They hurt the manufacturing and housing sectors, for starters, that rely on investment spending to build new equipment or new housing, which is directly affected by the cost of money—and there are 7 percent fixed-rate mortgages for homebuyers and owners wanting to refinance.

Manufacturing is just beginning to come out of the doldrums. The Institute for Supply Management’s latest purchasing managers index for US manufacturing, a monthly survey that gauges economic activity, rose more than expected in March to a reading of 50.3, the first time the index has registered expansion since September 2022.

And Existing-home sales slipped in March, according to the National Association of Realtors^®. Among the four major U.S. regions, sales slid in the Midwest, South and West, but rose in the Northeast for the first time since November 2023. Year-over-year, sales decreased in all regions.

“Though rebounding from cyclical lows, home sales are stuck because interest rates have not made any major moves,” said NAR Chief Economist Lawrence Yun. “There are nearly six million more jobs now compared to pre-COVID highs, which suggests more aspiring home buyers exist in the market.”

The Federal Reserve’s Beige Book, based on anecdotal evidence from the 12 districts collected over the past six weeks, was favorable in that it showed softening of activities that boost inflation.

“Economic activity increased slightly, on balance, since early January, with eight Districts reporting slight to modest growth in activity, three others reporting no change, and one District noting a slight softening. Several reports cited heightened price sensitivity by consumers and noted that households continued to trade down and to shift spending away from discretionary goods.”

So maybe the Fed’s credit restrictions are slowing consumer spending, but a far greater danger is that it penalizes producers that make the things businesses and consumers buy, making them more costly, thereby keeping prices higher.

The Conference Board’s LEI best illustrates the problem. The Fed’s efforts to lower inflation are stymied by its own inaction on bringing down interest rates, which are continuing to climb in some markets.

The LEI has stalled, fluctuating at a breakeven point between growth and recession. It decreased by 0.3 percent in March 2024 to 102.4 (2016=100), after increasing by 0.2 percent in February. Over the six-month period between September 2023 and March 2024, the LEI contracted by 2.2 percent—a smaller decrease than the 3.4 percent decline over the previous six months.

The best way to lower the price of things is to make more things, which  means in part lowering the cost of money to make them.

Harlan Green © 2024

Harlan Green on Twitter: https://twitter.com/HarlanGreen

Strong Growth Will Continue

 Financial FAQs

There’s a good reason we have avoided a recession, I said last week. Consumers’ personal financial conditions have improved, so they continue to shop, and they are responsible for 70 percent of economic activity.

Now the Conference Board’s Index of Leading Economic Indicators (LEI) is agreeing with them for the first time in six months. It is one of the few indexes that attempts to predict future growth but has been stagnant for two years and showed negative GDP growth since August 2023.

“The U.S. LEI rose in February 2024 for the first time since February 2022,” said Justyna Zabinska-La Monica, Senior Manager, Business Cycle Indicators, at The Conference Board. “Strength in weekly hours worked in manufacturing, stock prices, the Leading Credit Index™, and residential construction drove the LEI’s first monthly increase in two years…Despite February’s increase, the Index still suggests some headwinds to growth going forward. The Conference Board expects annualized US GDP growth to slow over the Q2 to Q3 2024 period, as rising consumer debt and elevated interest rates weigh on consumer spending.”

It uses indicators such as the direction of interest rates and workers’ hours to gauge future trends. The LEI is still lagging real GDP growth, per the below graph of both.

Conference Board

Because the main contributors to manufacturing’s current growth are a roaring stock market and increased working hours in manufacturing, will manufacturing finally come to life this year?

Preliminary S&P indexes for manufacturing and the service sector are both ‘flashing’ green lights. The flash U.S. manufacturing purchasing managers index climbed to a 22-month high of 52.5 this month from 52.2 in February. The S&P flash U.S. services PMI slipped to a three-month low of 51.7 in March from 52.3 in the prior month, but numbers above 50 signal growth in the economy.

The Atlanta Fed puts out another predictor of future growth. Its GDPNow Q1 estimate is 2.1 percent on March 19, down from 2.3 percent from March 14 after slowing first-quarter personal consumption expenditures growth and first-quarter real gross private domestic investment growth.

This may be temporary, however, as consumers and businesses are usually cautious at this time of the year while they attempt to assess their future.

The good news is that Wall Street is booming and even the housing market seems to be recovering, in spite of the Fed’s inaction on interest rates.

Stock indexes are at record highs, and existing-home sales surged 9.5% in February to a seasonally adjusted annual rate of 4.38 million, the largest monthly increase since February 2023. The inventory of unsold existing homes increased 5.9% from one month ago to 1.07 million at the end of February, or the equivalent of 2.9 months’ supply at the current monthly sales pace, which will further boost sales.

Federal Reserve Chairman Powell said they are in no hurry to cut interest rates because the US economy is meeting the Fed’s twin mandates of stabile price and maximum employment in his latest congressional testimony.

This should reassure Americans there is strong growth ahead.

Harlan Green © 2024

Harlan Green on Twitter: https://twitter.com/HarlanGreen

Much Less Pessimism!

 Financial FAQs

Is the Irrational Pessimism I’ve been writing about finally turning into a more rational optimism that reflects how consumers see the current economy?

The two major measures of consumer confidence—the Conference Board’s Confidence Index and University of Michigan’s Consumer Sentiment Index are showing the mood of most Americans is improving, after the sudden inflation shock brought on by the COVID pandemic.

Yet there are still doubters that 2024 will cement the recovery. Why?

It’s mainly due to geopolitical uncertainties from regional wars and the lagging recoveries of EU countries and China still suffering the aftereffects of the pandemic.

The most recent predictions of the Conference Board’s Index of Leading Economic Indicators that is supposed to predict future activity is one example.

“The US LEI fell slightly in December, continuing to signal underlying weakness in the US economy,” said Justyna Zabinska-La Monica, Senior Manager, Business Cycle Indicators, at The Conference Board, though six of the ten indicators have turned positive.

“Nonetheless, these improvements were more than offset by weak conditions in manufacturing, the high interest-rate environment, and low consumer confidence. As the magnitude of monthly declines has lessened, the LEI’s six-month and twelve-month growth rates have turned upward but remain negative, continuing to signal the risk of recession ahead.”

But interest rates have fallen sharply, manufacturing is showing signs of recovery, and consumer confidence has just shot up. So maybe the LEI is now looking through the rear-view mirror, just as consumers still in a foul mood have been doing because of damage done from the pandemic.

UofMichigan

The University of Michigan’s survey jump was huge: “Consumer sentiment soared 13% in January to reach its highest level since July 2021, showing that the sharp increase in December was no fluke,” said Survey Director Joanne Hsu. “Consumer views were supported by confidence that inflation has turned a corner and strengthening income expectations. Over the last two months, sentiment has climbed a cumulative 29%, the largest two-month increase since 1991 as a recession ended. (my emphasis)

SFFed

Nobelist Paul Krugman in a recent NYTimes Opinion also points out another sentiment index by the San Francisco Fed, its Daily News Sentiment Index that looks at 200 publications for favorable/unfavorable coverage of economic news.

It has been trending positive since mid-year 2023.

Such surveys don’t portend a looming recession, rather the end of one. Shouldn’t we be listening to consumers that are the final arbiter of business cycles since they account for 70 percent of economic activity?

Harlan Green © 2024

Harlan Green on Twitter: https://twitter.com/HarlanGreen

The Fed Might Cause Another Recession

Financial FAQs

EPI.org

A headline reporting on Fed Chairman Powell’s latest testimony to congress said the Fed will battle inflation until it is subdued, sounding more hawkish because January numbers for retail spending, employment and inflation were stronger than expected.

The problem is most inflation is being caused by factors outside of the Fed’s control.

So good luck, I say, in continuing to boost interest rates without causing a recession. The last time the Fed was in such a position—battling surging inflation in early 2000 that brought on the housing bubble and was due to circumstances largely beyond its control (The War on Terror)—it resulted in the Great Recession.

The Fed had so over-reacted by raising interest rates 16 consecutive times under Fed Chair Alan Greenspan that it took his successor Ben Bernanke’s emergency Quantitative Easing policies to keep the U.S. and world economies from turning it into a second Great Depression.

The cost this time of the Fed holding to its 2 percent inflation target could be 2 million workers losing their jobs, according to Massachusetts Senator Elizabeth Warren.

Today’s Fed hasn’t seemed to even acknowledge that a major component of the current inflation is record corporate profits from the post-pandemic recovery when corporations took advantage of the supply shortages to goose their profit margins.

Economic Policy Institute economist Josh Bivens estimates that at least half of the current inflation was caused by said increase in corporate profits in a study out last year (see EPI graph).

“Since the trough of the COVID-19 recession in the second quarter of 2020, overall prices in the NFCorporate sector have risen at an annualized rate of 6.1%—a pronounced acceleration over the 1.8% price growth that characterized the pre-pandemic business cycle of 2007–2019. Strikingly, over half of this increase (53.9%) can be attributed to fatter profit margins, with labor costs contributing less than 8% of this increase.”

January’s consumer spending was also boosted by the 8 percent inflation-adjusted rise in Social Security payments in the New Year.

Consumers reacted accordingly with January consumer spending up 1.8 percent, while personal incomes rose 0.6 percent in the BEA’s latest personal income (PCE) report.

Fear of what Fed Chair Powell may say and do next is already affecting what consumers and businesses may do next. The Conference Board Index of Leading Economic Indicators (LEI) already predicts a recession sometime this year.

Conference Board

“Among the leading indicators, deteriorating manufacturing new orders, consumers’ expectations of business conditions, and credit conditions more than offset strengths in labor markets and stock prices to drive the index lower in the month,” said said Ataman Ozyildirim, Senior Director, Economics, at The Conference Board.

Maybe Powell’s Fed is just playing it safe in hinting that more pain is possible if January’s boost in spending and inflation isn’t a temporary glitch as more data from February come in.

Friday’s upcoming unemployment report is one such sign, since January’s red-hot employment report of 537,000 new jobs scared the Fed into believing higher inflation might be prolonged.

Harlan Green © 2023

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

 

Leading Indicators Say Imminent Recession?

Financial FAQs

Conference Board

One economic growth measure acknowledged by market professionals but few else is the Conference Board’s Index of Leading Economic Indicators (LEI) that attempts to forecast future economic activity. And it is signaling an upcoming recession, according to its director.

“The US LEI fell again in September and its persistent downward trajectory in recent months suggests a recession is increasingly likely before yearend,” said Ataman Ozyildirim, Senior Director, Economics, at The Conference Board. “The six-month growth rate of the LEI fell deeper into negative territory in September, and weaknesses among the leading indicators were widespread. Amid high inflation, slowing labor markets, rising interest rates, and tighter credit conditions, The Conference Board forecasts real GDP growth will be 1.5 percent year-over-year in 2022, before slowing further in the first half of next year.”

So it is predicting contraction later this year: “The negative contributors—beginning with the largest negative contributor—were stock prices, average consumer expectations for business conditions, the ISM® New Orders Index, the Leading Credit Index™ (inverted), and manufacturers’ new orders for nondefense capital goods excluding aircraft,” said the LEI.

The labor market is slowing but it is still tight with initial jobless claims ultra-low, and inflation beginning to decline, which makes it less likely the U.S. slides into recession this year.

Prices are already plunging is many areas not covered by the standard inflation indexes. The New York Federal Reserve has said its September Survey of Consumer Expectations found that respondents projected their spending will rise by 6 percent over the next year, a sharp drop from the 7.8 percent rise predicted in the August survey. The bank noted that decline in spending expectations was the biggest since the survey began in 2013, while inflation expectations are holding steady, even declining slightly in the near term.

This will be a Federal Reserve induced recession if it materializes. Stock prices and consumer spending are down because of the higher interest rates, with the housing market, another leading indicator, already in recession.

The COVID pandemic and war in Ukraine have thrown a monkey wrench into economic policymaking because inflation reared up so quickly after the worldwide shutdown of economic activity, while governments and Central Banks spent $trillions in various COVID rescue packages in the face of worldwide shortages of goods and services—especially food and energy.

I quoted Adam Tooze, a well-regarded economic historian, last week as sounding the alarm in a recent NYTimes Opinion.

“We now find ourselves in the midst of the most comprehensive tightening of monetary policy the world has seen. And raising interest rates is not going to bring more gas or microchips to market, but rather the contrary. Reducing investment will limit capacity and thus reduce future supply”

Yet the Conference Board’s confidence index signals consumers are still upbeat, at least through the holidays, which makes it also less likely we see a downturn this year.

“…purchasing intentions were mixed, with intentions to buy automobiles and big-ticket appliances up, while home purchasing intentions fell,” said the Conference Board. The latter no doubt reflects rising mortgage rates and a cooling housing market. Looking ahead, the improvement in confidence may bode well for consumer spending in the final months of 2022, but inflation and interest-rate hikes remain strong headwinds to growth in the short term.”

In fact, Gross Domestic Product is predicted to grow more than 2 percent in Q3 and slightly less in the fourth quarter. So, no recession is yet in the works—at least this year.

Harlan Green © 2022

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

 

LEADING INDICATORS SHOW MODERATE GROWTH

 Popular Economics Weekly

ConferenceBoardLEI

The Conference Board Leading Economic Index® (LEI) for the U.S. decreased by 0.3 percent in April to 119.2 (2016 = 100), following a 0.1 percent increase in March. (But) The LEI is now up 0.9 percent over the six-month period from October 2021 to April 2022.

Not many economists cite the Conference Board’s Index of Leading Economic Indicators (LEI) that are good at predicting future economic activity. It’s much better than the projected earnings estimates Wall Street traders tend to follow who are pressing the panic button that a recession in imminent.

So why the current doom and gloom with corporations still making record profits and unemployment at record lows?

The LEI is a good predictor of recessions as the above graph shows, with gray bars indicating past recessions and the LEI’s immediate up trend at the end of each recession.

“The US LEI declined in April largely due to weak consumer expectations and a drop in residential building permits,” said Ataman Ozyildirim, Senior Director of Economic Research at The Conference Board…A range of downside risks—including inflation, rising interest rates, supply chain disruptions, and pandemic-related shutdowns, particularly in China—continue to weigh on the outlook. Nevertheless…The Conference Board still projects 2.3 percent year-over-year US GDP growth in 2022.”

FREDcorpprofits

U.S. corporations are making record profits as a percentage of GDP—in fact, the highest profits since World War Two, as the St Louis FRED historical graph from 1950 shows. During the COVID pandemic it dropped briefly to 8 percent of GDP, but quickly rose to its current 11.2 percent, the best on record.

And because corporations made record profits over the past year due to the pandemic, earnings growth will slow to historical levels this year, as the law of averages requires. So rather than focus on quarterly trends (i.e., short-term profits), serious investors and fund managers need to focus on the long term, when their investors approach retirement age.

U.S. economic growth must also come down from its 5.6 percent high last year when consumers and businesses burst out of the pandemic; essentially starting from a ground zero of economic shutdowns during March-April 2020.

The flood of new money from the $trillions in aid and record rescue packages have goosed that growth, causing the current inflationary surge. But such spending and inflation will also slow for the same reason.

Prices had stalled at ground zero back then, even fallen into negative territory. So, the law of averages rules once again—demand will slow from its artificially boosted high, while supplies will catch up from their artificially-induced scarcities.

Fed Chair Powell has been attempting to tell us that in his latest press conferences, so why won’t the financial markets believe him? Settling for moderate growth means more sustainable, longer term growth.

Harlan Green © 2022

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

It's Up To the Consumers!

Popular Economics Weekly

Consumers are feeling good enough to keep the US economy from sinking into recession at the moment. The consumer sentiment survey edged up to 98.4 this month from 98.2 in June, according to a preliminary reading from the University Michigan.

“Consumer sentiment remained largely unchanged in early July from June, remaining at quite favorable levels since the start of 2017,” said survey chief economist Richard Curtin. “Moreover, the variations in Sentiment Index have been remarkably small, ranging from 91.2 to 101.4 in the past 30 months. Perhaps the most interesting change in the July survey was in inflation expectations, with the year-ahead rate slightly lower and the longer term rate moving to the top of the narrow range it has traveled in the past few years.”

Actually, sentiment has been fluctuating in that range for several years, per the FRED graph, as economic growth and employment finally ramped up in 2015 after the Great Recession, boosting consumer confidence.

Curtin believes that inflation expectations affect consumer confidence, as the survey indicates consumer expectations for growth and jobs (hence confidence) rise with a lower inflation rate. Hence the Federal Reserve mandate to keep inflation stable while low enough to enable growth.  So today’s ultra-low inflation (and interest rates) could be encouraging consumers to spend more.

“The Consumer Expectations Index falls as inflation expectations rise, signifying that consumers view higher inflation as a threat to economic growth,” he continued. “Higher inflation was related more frequently to rising interest rates and was associated with higher unemployment expectations.”

The Conference Board’s Index of Leading Economic indicators (LEI) that is a good predictor of economic activity over the next six months was not so optimistic.

“The US LEI fell in June, the first decline since last December, primarily driven by weaknesses in new orders for manufacturing, housing permits, and unemployment insurance claims,” said Ataman Ozyildirim, Senior Director of Economic Research at The Conference Board. “For the first time since late 2007, the yield spread made a small negative contribution. As the US economy enters its eleventh year of expansion, the longest in US history, the LEI suggests growth is likely to remain slow in the second half of the year.”

Why? Manufacturers’ new orders, building permits in latest housing starts survey, and the yield curve were negative. The interest rate spread between the 10-year Treasury note and fed funds rate has sunk to negative -0.31 percent, from a positive +0.56 percent last December. Long term interest rates sinking below short term rates is a sign of slower growth, since investors rush to buy longer term Treasury bonds as a safe haven if there is too much economic uncertainty, as is happening at present.

A simple way to fix the inverted yield curve problem is for the Fed to lower the fed funds rate again. But is that the right thing to do when retail sales are soaring, and June payrolls totaled 224,000 new jobs? The economy is booming, in other words, so the Fed would normally allow higher interest rates unless other forces are at work—such as White House tweets that are artificially boost stock prices (which enrich stockholders and corporate CEOs), rather than policies that would help Main St. workers—like a higher minimum wage, and better worker protections, and strengthening health care policies, which would promote longer term economic growth.

So in fact other sectors of the economy have to be boosted, if we are to continue in this ‘goldilocks’ growth cycle (i.e., not too hot or too cold). Consumers won’t continue to party, otherwise.

Harlan Green © 2019

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Rebound in Retail Sales Sign of Growth Rebound?

Popular Economics Weekly

Sales at U.S. retailers surged in March by the most in a year and a half, the latest in a string of reports suggesting economic growth is picking up after a soft spell of growth earlier in the year. Retail sales soared 1.6 percent last month, the government said Thursday. This beat economists’ expectations.

Econoday.com

And the Conference Board reported its Index of Leading Economic Indicators rose 0.4 percent, which is another sign that economic growth is trending back to normal from the Q1 slowdown.

“The US LEI picked up in March with labor markets, consumers’ outlook, and financial conditions making the largest contributions,” said Ataman Ozyildirim, Director of Economic Research at The Conference Board. ”Despite the relatively large gain in March, the trend in the US LEI continues to moderate, suggesting that growth in the US economy is likely to decelerate toward its long term potential of about 2 percent by year end.”

A 2 percent growth rate is still enough to keep consumers happy and the unemployment rate low for the rest of this year.

New car sales and trucks rose 3.1 percent — the best performance this year, reports MarketWatch — to give the broader retail industry a boost. Auto receipts represent about one-fifth of all retail sales. Sales at auto dealers jumped 3.5 percent, as a result, the second big increase in a row.

But Americans also spent more to fill up their gas tanks. The average price of gas nationally rose almost 10 percent in March to $2.62 a gallon, government figures show. The last time prices were that high was in November.

Even if gas and autos are set aside, retail sales still rose a robust 0.9 percent. Among the big winners: Internet retailers, clothing stores, home-furnishing outlets and grocers. Sales rose between 1 and 2 percent in those segments.

In fact, sales rose in every category except for stores that sell books, musical instruments and hobby items. Traditional brick-and-mortar department stores were also laggards with flat sales.

But the 1.6 percent rise in March retail sales just recoups the -1.6 percent decline in December, while January and February showed miniscule growth, so we are back to 4 percent annual sales growth when 5 to 6 percent was the norm in 2017-18, in terms of overall sales—another sign of slowing growth this year from last year.

The Conference Board’s leading indicators also showed strength in manufacturing and lower jobless claims, but the yield curve, or so-called interest rate spread between long and short term Treasury bonds, continues to narrow, pointing to a greater possibility of shrinking bank profits and credit availability later this year.

Yet both the Conference Board and U. of Michigan measures of consumer confidence also show consumers are happy at the moment, in part because the Fed says it won’t be raising their interest rates anytime soon and there are still more than 7 million job openings, according to the Labor Department’s latest JOLTS report.

All this means retail sales should continue to perk up on this Good Friday with the financial markets closed. We have to remember that as long as consumers are happy, the US economy will continue to grow, regardless of government missteps and geopolitical uncertainty.

Harlan Green © 2019

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Leading Indicators Signal Strong Growth Ahead, If...

Popular Economics Weekly

The Republican Congress needs to abandon its obsession with repealing Obamacare, since Republicans will never agree on a replacement, and many Senate Republicans have just announced they oppose the current Republican House Trumpcare proposal.

Instead they need to focus on passing an infrastructure bill that will rebuild public and private infrastructure that the American Society of Civil Engineers (ASCE) says is now behind more the $4.5 trillion in maintenance alone, such as highways, harbors, wastewater facilities and bridges.

Graph: CBO

The Conference Board’s Index of Leading Economic Indicators is one of several anecdotal surveys (i.e., opinions) that aren’t yet borne out by actual activity. The Conference Board said its leading economic index rose 0.6 percent in February — the third straight gain of that magnitude — to reach its highest level in more than a decade.

Graph: ICAP

“Widespread gains across a majority of the leading indicators point to an improving economic outlook for 2017, although GDP growth is likely to remain moderate,” said Ataman Ozyildirim, director of business cycles and growth research at The Conference Board.

The improvement in the LEI over the past several months is said to be due to optimism that Congress can pass a massive infrastructure bill, as well as reducing regulations. But can Trump keep his promise to invest in infrastructure, when his new proposed budget cuts road spending by nearly half a billion dollars, and includes no new infrastructure spending?

The American Society of Civil Engineers (ASCE) estimates the US needs to spend some $4.5 trillion by 2025 to improve the state of the country's roads, bridges, dams, airports, schools, and more in its 2017 Infrastructure Report Card.

For instance, out of the 614,387 bridges in the US, more than 200,000 are more than 50 years old. The report estimates it would cost some $123 billion just to fix the bridges in the US, and many of the one million drinking water pipes have been in use for almost 100 years. The aging system makes water breaks more prevalent, which means there are about two trillion gallons of treated water lost each year.

And even more important to our security and economic well-being, the majority of the transmission and distribution lines were built in the mid-20th century and have a life expectancy of about 50 years, meaning that they are already outdated. So between 2016 to 2025, there's an investment gap of about $177 billion for infrastructure that supports electricity, like power plants and power lines, reports the ASCE. 

Need we say more about the importance of a major infrastructure bill, which is far more important to Americans that the ideological debate over Obamacare and healthcare in general?

Harlan Green © 2017

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Motor Vehicles, Housing Will Power 2016 Economy

Popular Economics Weekly

Even though Q1 2016 GDP growth looks weak for a number of reasons (such as lower exports and slumping oil prices that depress energy sector earnings), there are reasons it can go higher in 2016. Oil prices have stabilized, for starters, and exports are rising again as the dollar has weakened against other currencies when the Fed signaled it wouldn’t raise interest rates further until later, if at all this year, due to the worldwide slowdown in growth.

Graph: Trading Economics

 

Firstly, auto sales, a major component of retail sales, should surpass last year’s 17.5 million total, according to industry pundits. Moderate wage growth, declining gasoline prices and continued low interest rates on auto loans will drive new car and light truck sales higher in 2016, said Steven Szakaly, chief economist of the National Automobile Dealers Association, at the Los Angeles Auto Show.

“New light-vehicle sales will rise to 17.71 million units in 2016, a 2.3 percent increase from our forecast of 17.3 million sales in 2015,” Szakaly said. “This would mark the seventh straight year of increasing U.S. new-vehicle sales.”

There is a temporary weakness in motor vehicle production because of a slowdown in current vehicle sales, according to the Fed’s March Industrial Production figures. But production has climbed steadily higher in the last five years and been the strongest component in the Fed’s Manufacturing Index.

And housing sales are picking up, beginning with the just released existing-home sales, up 5.1 percent to a 5.33 million annual rate in March. Existing sales rose in all four major regions last month and are up modestly (1.5 percent) from March 2015. Total housing inventory at the end of March increased 5.9 percent to 1.98 million existing homes available for sale, but is still 1.5 percent lower than a year ago (2.01 million).

 

Graph: Calculated Risk

The above graph shows that existing sales have been rising steadily since 2008 the end of the Great Recession. Unsold inventory is at a 4.5-month supply at the current sales pace, up from 4.4 months in February, but still far too low to stimulate more buying in the lower price ranges, where inventory is most lacking. In fact, inventory has fallen back to 2000 levels, even before the housing bubble that doubled the housing inventory.

Another window into the housing market is the volume of mortgage applications that depend on interest rates, and rates are back to historic lows with the 30-year conforming fixed rate down to 3.25 percent for a 1 point origination fee in California.

Applications increased 1.3 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending April 15, 2016. The Refinance Index increased 3 percent from the previous week. The unadjusted Purchase Index increased 1 percent compared with the previous week and is 17 percent higher than the same week one year ago.

Another sign of future growth is the Conference Board Leading Economic Index® (LEI) for the U.S., which increased for the first time in 3 months, up 0.2 percent in March to 123.4 (2010 = 100), following a 0.1 percent decline in February, and a 0.2 percent decline in January.

“With the March gain, the U.S. LEI’s six-month growth rate improved slightly but still points to slow, although not slowing, growth in the coming quarters,” said Ataman Ozyildirim, Director of Business Cycles and Growth Research at The Conference Board. “Rebounding stock prices were offset by a decline in housing permits, but nonetheless there were widespread gains among the leading indicators. Financial conditions, as well as expected improvements in manufacturing, should support a modest growth environment in 2016.”

Manufacturer’s new orders, higher stock prices (now above 2015 indexes), and the fact that weekly jobless claims fell to the lowest level since 1973 were the strongest signs of future growth in the Conference Board’s LEI.

Still, it consumer spending that powers most economic activity these days, and consumers will only spend when there’s more market stability, hence certainty in such things as energy prices, which have been fluctuating wildly of late, and an adequate supply of new housing that keeps housing prices within reach of prospective home buyers.

Harlan Green © 2016

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Record Post-Recession Home Sales, Construction, Case-Shiller Prices in July

The Mortgage Corner

With all the bad news coming from the stock market, it’s good to know that this hasn’t affected the housing market. In fact, it’s pushing interest rates lower, so that a conforming 30-year fixed mortgage rate has dropped to 3.50 percent in California. And that will continue to boost home sales (and prices, of course). That’s why Case-Shiller shows two cities already above their bubble highs, and the Conference Board’s Index of Leading Economic Indicators (LEI) shows continued strong growth ahead.

Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, increased a whopping 2 percent to a seasonally adjusted annual rate of 5.59 million in July from a downwardly revised 5.48 million in June. Sales in July remained at the highest pace since February 2007 (5.79 million), have now increased year-over-year for ten consecutive months and are 10.3 percent above a year ago.

Graph: Econoday

Lawrence Yun, NAR chief economist, says the increase in sales in July solidifies what has been an impressive growth in activity during this year's peak buying season. "The creation of jobs added at a steady clip and the prospect of higher mortgage rates and home prices down the road is encouraging more households to buy now," he said. "As a result, current homeowners are using their increasing housing equity towards the downpayment on their next purchase."

And demand is well ahead of thin supply, at 4.8 months at the current sales rate vs 4.9 and 5.1 in the two prior months and 5.6 months in July last year. Sales are up 10.3 percent year-on-year, well ahead of the median price which, at $234,000, is up 5.6 percent.

The S&P/Case-Shiller U.S. National Home Price Index recorded a higher year-over-year gain with a 4.5 percent annual increase in June 2015 versus a 4.4 percent increase in May 2015. The smaller 10-City Composite had marginally lower year-over-year gains, with an increase of 4.6 percent year-over-year. Denver and Dallas are the two cities now above their 2007 bubble highs, while Denver (+10.2%), San Francisco (+9.5%) and Dallas (+8.2%) had the biggest year over year increases.

Graph: Calculated Risk

This mismatch of supply vs. demand means even higher existing-home prices ahead. Especially since housing construction is just beginning to play catch up after years of low growth—no coincidence, given the rising demand for housing of any kind—rental as well as for prospective homeowners. Led by a strong jump in single-family production, nationwide housing starts inched up 0.2 percent to a seasonally adjusted annual rate of 1.206 million units in July, according to newly released data from the U.S. Department of Housing and Urban Development and the Commerce Department. This is the highest level since October 2007.

It’s also why the Conference Board’s Index of Leading Economic Indicators (LEI) continues to show moderate growth for the next 6 months, and is up 1.7 points from January to July. “The U.S. LEI fell slightly in July, after four months of strong gains. Despite a sharp drop in housing permits, the U.S. LEI is still pointing to moderate economic growth through the remainder of the year,” said Ataman Ozyildirim, Director of Business Cycles and Growth Research at The Conference Board.

Swings in housing permits have been distorting recent LEI readings including for July. Permits, which fell 16 percent in Tuesday's housing starts report, more than offset what are a run of mostly neutral readings among other components. Given the uncertainties of measuring housing data (readings with plus or minus 11 percent variations are common) the index could have added another 0.54 points to the July indicator, instead of subtracting that amount, for a much stronger reading.

The strongest component is the rate spread which reflects the Fed's ongoing accommodative policy. Also pointing to strength are initial jobless claims, which are at rock bottom lows, and the report's credit index which points to a rise ahead for lending.

So what’s happening in China and the so-called emerging markets (including the Petro states, and Russia) will help to keep interest rates low, housing strong, and maybe the Fed from raising their short-term rates for some time to come.

Harlan Green © 2015

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Conference Board’s Leading Economic Indicators Near Highs

Financial FAQs

The Conference Board Leading Economic Index® (LEI) for the U.S. increased 0.6 percent in November to 105.5 (2004 = 100), following a 0.6 percent increase in October, and a 0.8 percent increase in September.

It is a further sign of strong U.S. growth in the months ahead, maybe as high as 4 percent over the next 2 quarters. GDP growth has already averaged 4.25 percent over the last 2 quarters.

Graph: Trading Economics

“The increase in the LEI signals continued moderate growth through the winter season,” said Ken Goldstein, Economist at The Conference Board. “The biggest challenge has been, and remains, more income growth. However, with labor market conditions tightening, we are seeing the first signs of wage growth starting to pick up.”

Graph: Econoday

“Widespread and persistent gains in the LEI point to strong underlying conditions in the U.S. economic expansion,” said Ataman Ozyildirim, Economist at The Conference Board. “The current situation, measured by the coincident economic index, has been improving steadily, with employment and industrial production making the largest contributions in November.”

Graph: Calculated Risk

Much of the better job numbers come from industrial production that increased 1.3 percent in November after edging up in October. Manufacturing output increased 1.1 percent, with widespread gains among industries. Factory output was well above its average monthly pace of 0.3 percent over the previous five months and was its largest gain since February. It is up 13.2 percent from its low point in 2009, according to Calculated Risk.

Janet Yellen’s Federal Reserve also helped to boost growth prospects with her post-FOMC press conference in which she said that the Fed’s rates would not increase until long term job and wage growth showed a sustained pickup.

Nobelist Paul Krugman believes the Fed might wait even longer to raise their rates. “Basically, while growth and job creation have finally been pretty good lately, there is so far no sign whatever that the economy is overheating. Core inflation remains below the Fed’s target (the Fed focuses on a different measure that usually runs lower than the CPI, so this report is actually fairly far below target.)

“In fact, the opposite is happening. Domestic and worldwide inflation continues to fall, largely because of falling oil prices, which signals less use of petroleum products, ergo slowing business activity in other parts of the world. The U.S. seems to be the exception, in what we have come to call a ‘goldilocks economy’—growth without overheating.”

So we seem to have returned to a goldilocks economy much like that the 1990s that sustained high job and economic growth with little or no inflation, thanks to plentiful oil supplies that are projected to last for several years, at least.

Harlan Green © 2014

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Consumer Sentiment, Leading Indicators Signal Higher Growth

Popular Economics Weekly

Both the University of Michigan’s Consumer Sentiment survey and Conference Board’s Index of Leading Indicators rose in May, signaling that employment and growth may be stronger than forecast by most economists.

How can that be with 7.5 percent of the workforce looking for work and some 18 million that have either part time, or no work at all? The real answer is the U.S. economy is almost too complex to accurately measure, and economists have their biases when predicting growth. In fact, few understand what is called macroeconomics, which helps to predict how government polices affect growth.

For instance, Haver Analytics surveys monthly a group of leading economists, and found that the latest Blue Chip survey foresaw U.S. economic growth of 1.6 percent in Q1’13 following an anemic 1.4 percent rise during Q4'12, when Q1 GDP growth was actually 2.5 percent.

“There is, however, divergence as to the degree of further improvement,” wrote Haver Analytics in a major understatement. “By the end of 2013, the consensus foresees GDP growing at 2.7 percent rate with the top 10 forecasts at 3.6 percent and the bottom 10 at 1.8 percent. The same divergence holds true for next year's expected growth. The consensus of a 3.0 percent advance in real GDP for Q4 2014 is derived from 3.8 percent at the top end and 2.2 percent at the bottom.”

The Blue Chip Indicators also forecast a 7.5 percent unemployment rate by the end of 2013, when it has already dropped to that level in May. The Congressional Budget Office also forecasts 2 percent growth this year, rising to 3.5 percent in 2014.

Graph: Calculated Risk

Consumer spirits are improving dramatically this month in what very well may be a reflection of improvement in the jobs market. The consumer sentiment index jumped to 83.7 for the mid-month reading vs 76.4 for the final April reading and vs April's mid-month reading of 72.3. The Econoday consensus was looking for 78.0 with the high-end estimate at 82.5. The latest reading is near the recovery high set in November.

Boosted by strength in housing permits, the Conference Board’s index of leading economic indicators (LEI) surged 0.6 percent in April, double the rate of growth expected by the Econoday consensus and at the high-end of the Econoday consensus. The gain points to rising economic momentum six months out.

Also showing strength are financial measures, including credit activity, as well as jobless claims and the stock market. On the negative side are manufacturing measures, which reflect this sector's ongoing bumpy ride, as well as consumer expectations. This latter factor, however, is very likely to turn positive in May judging by this morning's big jump in the consumer sentiment report.

Graph: Haver Analytics

The bottom line is that conditions may be improving enough that consumers are willing to spend again. The household debt-service ratio - an estimate of the share of debt payments to disposable personal income - fell to 10.38 percent in Q4’12, reported the Federal Reserve.

That was the lowest since the series started in 1980. In comparison, the ratio, which takes into account outstanding mortgage and consumer debt, was 10.56 percent in the third quarter. It peaked in the third quarter of 2007, shortly before the U.S. economy fell into recession. This may give consumers, who power 70 percent of economic activity, enough confidence to spend again.

Harlan Green © 2013

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Consumers Key to Future Growth

Popular Economics Weekly

The February unemployment report gives a big boost to predictions for 2013 growth. The unemployment rate fell to 7.7 percent, and some 236,000 nonfarm payroll jobs were added to the workforce (246,000 private payroll jobs, less 10,000 government jobs lost). The next piece of the puzzle will be consumer spending. Will the increase in jobs be enough to offset the payroll tax increase? February retail sales, which account for one-third of consumer spending, comes out on Wednesday.

Graph: Calculated Risk

What makes the February report more hopeful was also the increase in incomes. Earnings have been oscillating monthly, but average hourly earnings increased 0.2 percent in February, following a gain of 0.1 percent January.   And the average workweek edged up to 34.5 hours in February from 34.4 hours the month before.

Turning to detail for the Household Survey that includes the self-employed, the decrease in the unemployment rate was from a 130,000 drop in the labor force, a 170,000 rise in household employment, and a 300,000 decrease in unemployed, a sign that more have stopped looking for work.

Graph: Econoday

Why are consumers the key to growth? Because they have been contributing to most of the Gross Domestic Product growth of late—1.5 percent in Fourth Quarter’s meager overall 0.1 percent rise in GDP activity, while government spending and inventories have been contracting.

Graph: Econoday

January’s retail sales fell slightly due to the tax increase but have still been averaging 4.8 percent since 2010, which matched the overall increase in jobs since then. Gains were scattered, led by general merchandise (up 1.1 percent), nonstore retailers (up 0.9 percent), and building materials & garden supplies (up 0.3 percent).  Weakness was in miscellaneous store retailers (down 2.6 percent), health & personal care (down 1.0 percent), and clothing & accessories (down 0.3 percent).

Graph: Econoday

The Conference Board’s January Index of Leading Economic Indicators also helps a bit when reading 2013 tea leaves. Interest rate and credit components were strong pluses for the outlook as is the rally in the stock market. Two very important components also on the plus side were lower unemployment claims and higher building permits. The claims point to strength in the jobs market and the permits to strength in housing. A negative is consumer expectations which could be low for a number of reasons--higher payroll taxes, uncertainty over future income, and higher gasoline prices, say analysts.

But we know consumer expectations are notoriously fickle, and can change direction suddenly. The latest Conference Board survey of consumer confidence shows a slight improvement, but it remains at the low end.

Why should consumers be more confident with so many still out of work and the White House fighting with Congress over budget deficits, rather than proposing more job creation programs? It should be clear by now that too much government austerity is the danger, as in Europe, while the private sector is using most of its profits in other ways—whether to create more jobs overseas, or for mergers and acquisitions, or more speculation on Wall Street.

Harlan Green © 2013

Follow Harlan Green on Twitter: www.twitter.com/HarlanGreen

Increased Consumer Spending a Good Sign

Financial FAQs

The most recent retail sales show consumers are able to spend more, even as they borrow more. Add to that credit card delinquencies are at an 18-year low, according to credit reporting company Transunion Corp., and we have a picture of an improving economy. This is, the fact that consumers can continue to cure their debt problems, while spending more, is a good sign.

"The national credit card delinquency rate continues to remain at the lowest levels we've observed in 18 years," said Ezra Becker, vice president of research and consulting in TransUnion's financial services business unit. "It's a positive situation because average borrower balances have increased over the past year as new card originations have grown."

Graph: Econoday

Retail sales soared in July. Total sales rose 0.8 percent for the strongest rise since February with ex-auto sales also up 0.8 percent for, again, the best showing since February. All components show gains including motor vehicles, general merchandise, health & personal care, furniture, and restaurants. Clothing also shows a significant gain, one that points to strength for the back-to-school season. Ex-auto ex-gas the gain is 0.9 percent for the best showing since January, said Econoday.

This was predicted by the surge in consumer borrowing. Total credit outstanding rose $6.5 billion in June, following a $16.7 billion jump the month before, reported the Federal Reserve. The latest gain was led by non-revolving credit, gaining $10.2 billion in June after a $9.2 billion rise in May. Non-revolving credit is mostly for motor vehicle purchases and student loans.

 

Graph: Econoday

What is behind greater consumer spending is the consumer feels better about the economy despite the recent run up in gasoline prices. Apparently it is due to a somewhat improved jobs picture with 163,000 net payroll jobs created in July. Strength was in the consumer's assessment of current conditions which was up solidly at 87.6 versus July's 82.7. This gain also underscores the improvement seen in weekly jobless claims, which are now down in the 350,000 range from more than 400,000 last year.

Graph: Econoday

So there are signs that the recovery may be gaining a little more strength—emphasis on little, however.  The Conference Board’s July index of leading economic indicators rebounded 0.4 percent, offsetting the June decline of 0.4 percent. It is at its highest level since February 2007, which should boost consumer confidence even higher.

Graph: Econoday

The improvement in jobless claims, which points to improvement in underlying job growth, together with improvement in building permits led the increase in the overall index with each component having a contribution of 0.18 percentage points.

Also with positive contributions were the report's credit reading, the stock market, and the report's imputed readings for new orders on both consumer and capital goods which are government data that have yet to be released, said Econoday.

So July was a good month for consumers, and points to further economic improvement for holiday retail sales, which should drive economic growth for the rest of the year. So consumers seem to be focusing more on improving their own financial condition, rather than the discouraging news about China, Europe, and a deadlocked Congress.

Harlan Green © 2012

Why the Summer Growth Slowdown?

Financial FAQs

The summer growth numbers seem weak, and pundits are saying it’s due to the European recession (so lower exports), the ‘fiscal cliff’(employers uncertain about future growth), and consumers with too much debt. But the numbers really show a repeat of last summer, when hiring slowed due to basically the same worries but picked up again in the fall (due to the Japanese Tsunami instead of euro, and debt cap stalemate that downgraded U.S. debt).

However, overall growth is still weak because so much income has been transferred to the wealthiest; particularly since 2000 and the Bush tax breaks, leaving middle class earners with even less income than in 2000. In fact, middle incomes have not even kept up with inflation since 2000. And middle income earners—i.e., most consumers—have been the main engine of U.S. growth since World War II.

Graph: CBPP

The good news is the Conference Board’s Index of Leading Economic Indicators which seems to alternate in up and down months, still shows moderate growth prospects for the rest of the year.

Graph: Econoday

For instance, since July 2011 growth in the Coincident Indicators that tracks GDP growth has been positive 8 of the past 12 months, with huge spikes in October and December 2011 and only 1 negative month in March 2012. The Leading Indicator that attempts to predict growth over the next 6 months was more negative with 4 contractions in 12 months. But in fact, the Leading Indicator has grown 1 percent in the past 6 months, up from 0.5 percent over the prior 6 months, signaling better prospects for growth.

So why all the fears of a dismal rest of the year? Could it be the 24/7 news cycle that exaggerates both the good and bad news? That is what causes most ‘bubbles’, according to Robert Shiller of Irrational Exuberance fame. We are literally being showered with too much economic data that even economists are hard put to understand.

For instance, other indicators also point to better growth in the fall. By major components, June industrial production gained 0.7 percent after falling 0.7 percent in May, according to the Fed. Motor vehicles output added significantly to manufacturing, rebounding 1.9 percent in June after a 2.2 percent decline in May. Manufacturing excluding motor vehicles was quite strong also gaining 0.6 percent in June, following a 0.5 percent drop in May.

Graph: Econoday

So once again growth far outnumbers contraction in the manufacturing sector, with just 4 contractions in the past 17 months. So it seems rumor drives much of business and consumer confidence, as Europe’s problems seem to be affecting U.S. growth, but know one knows how much. So it is all about ‘momentum”, the magic word that spurred so much inflated stock values in the last decade, but now seems to deflate expectations for future growth!

What to do about this? Firstly, we need to counter the pessimists with greater stimulus spending, which more than pays for itself in increased activity. It can even be revenue neutral. For the real reason growth has been so tardy is most of the profits from the past 10 years of growth have gone to the wealthiest, thanks both to record corporate profits, and record tax cuts for the investor class, as I said—the lowest tax rates since the 1920s—that have drastically lowered tax revenues and increased the federal deficit.

So right now, it is the intransigence of many of the richest among us (such as Mitt Romney with his tax havens) who refuse to divert some of their wealth to provide more stimulus during a time of record income inequality. It is their refusal to return to the pre-Bush, Clinton-era taxation levels of 1992-2000 when most growth occurred and most jobs were created, in other words, that is holding back a real recovery.

Harlan Green © 2012

Employment Will Drive Recovery in 2012

Popular Economics Weekly

It seems the lingering doubts about better growth in 2012 have nothing to do with reality. Predictions that job growth may have slowed come from a recent uptick in weekly initial jobless claims, but such numbers are notoriously subject to revisions, while the Bureau of Labor Statistics’ Job Openings Layoffs and Transfer Survey (JOLTS) that measures actual job layoffs and openings says employment is surging.

Graph: Wrightson ICAP

Which should we believe? JOLTS, because it has shown steady improvement since its mid-2009 low, and isn’t subject to large swings! The hire rate has steadily improved to 3.3 percent from its 2.9 percent low, while the number of job openings has increased from 2.2m to 3.5m in February 2012.

There are other signs, as well. Calculated Risk reports the Federal Reserve Bank of Philadelphia has released the coincident indexes for the 50 states for March 2012. In the past month, the indexes increased in 48 states, decreased in one state (Rhode Island), and remained stable in one state (South Dakota), for a one-month diffusion index of 94.

Graph: Philadelphia Fed

This is a graph is of the number of states with one month increasing activity according to the Philly Fed. In March, 49 states had increasing activity, up from 47 in February. The number of states with increasing activity has been at or above 47 for the last seven consecutive months. The states with highest growth indexes are dark green.

And labor productivity has been sliding as employers continue to try to squeeze more out of their workers, who are already maxed out, instead of hiring additional workers. But the NFIB small business survey says small businesses which hire something like two-thirds of new workers have been adding workers.

The composite survey rose by one tenth of a point to 93.9, which left it just below the high point reached in last winter’s economic pick-up. The economic expectations index continued its recovery from last summer’s low point by five points, but the other measures that go into the headline index were mixed. Needless to say, tight credit conditions have been the biggest obstacle to small business growth.

Graph: Wrightson ICAP

One moderately encouraging aspect of the report is the fact that the credit expectations indexes held onto the previous month’s gains, according to Wrightson ICAP. “The indexes for current and expected credit conditions held steady at their December levels, which matched the best readings in those measures since the collapse of Lehman. Small business owners still view credit availability as somewhat restricted, but conditions have eased again since the summer,” said Wrightson ICAP.

Graph: Econoday

Lastly, the bears had to have been disappointed with the Conference Board’s latest Index of Leading Indicators (LEI) report—still no sign of pending collapse in the recovery. The index of leading economic indicators continues to signal healthy growth ahead. And signals outside this factor are also positive especially growth of building permits -- which is an important and hopeful signal of badly needed recovery for the housing sector. The stock market is also a positive as is the report's reading on lending conditions.

Harlan Green © 2012