US data suggesting flat economy not recession
Simon Ward
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On the last reading my probability indicator suggested a 45% chance of a US recession (I shall provide an update soon). While below the “trigger” level, such a high reading clearly implies a weak economy, with GDP growing negligibly. The data this week have been consistent with this picture.
Take today’s employment report for December. I think the index of aggregate hours worked in the private sector is a better cyclical indicator than headline non-farm payrolls. As the first chart shows, this measure has shown little growth over the last three months but is not yet contracting – a necessary but not sufficient condition for a recession.
A similar message comes from another sensitive indicator – the new orders index from the ISM manufacturing report. This index plunged to 46 in December but has fallen to 43 or below in recessions historically – see second chart.
If the US economy does fall into recession the culprit will be not the “credit crunch” but soaring energy prices. At the risk of labouring the point, I think premature Fed easing has been a significant contributor to this surge.
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