Previous posts argued that 1) the US economy would slow from the spring but 2) a recession would probably be avoided, because real narrow money was still growing. The latest monetary data continue to suggest moderate economic expansion: six-month real narrow money growth has stabilised at a respectable historical level – see first chart, which incorporates an estimate for July.
The monetary message is supported by job openings (i.e. vacancies) – a shorter-term leading indicator with a good track record (having turned down in mid-2007 ahead of the 2008-09 recession). June private-sector openings more than reversed a fall in May, with the three-month moving average rising to a new recovery high – second chart.
The continued rally in US equities suggests that investors are discounting both continued economic expansion and meaningful further Fed easing – it is not clear that they will get both. Another risk is that the recent rebound in commodity prices pushes up inflation, causing a renewed slowdown in real money. Summer rallies are often unreliable, the classic example being 1987 – see third chart, which updates a comparison in another prior post.