US monthly GDP still trending up

 I calculate a monthly GDP proxy, called the QCI.  It is an unweighted average of industrial production, non-agricultural employment, and the volume of retail sales.  

The name comes from Quick Coinciding Index, and I called it that because when I first started calculating my coinciding indices, I used an IBM 286, which had a very small memory, and couldn't cope with the large arrays I was using in my calculations.  The QCI was just a simple unweighted index, which the limited memory of my 286 could cope with without the need to roll arrays from memory out to the hard disk, and so was much quicker to calculate!

In most countries, a QCI correlates well with GDP, and its latest data are available a couple of months before GDP data are released.

The chart below shows the YoY % changes in real GDP and in my QCI.  The gap over the last year is caused by post-covid "revenge spending" on services.  That has recently started to fizzle out, so headline GDP growth will likely slow, even as the QCI picks up.

Note the weather-related slump in Jan 2024.

US employment data remain strong

There are random fluctuations in any time series, which can cloud one's perception of the current status quo.   The old "signal-to-noise" problem.  

It seems to me, though, that the change in employment is accelerating, while the change in unemployment (inverted because it is inversely related to economic activity) is still improving, despite February's jump in the unemployment rate (which, remember, is shown as a fall because it's plotted inverted).  

Overtime hours (very sensitive to the cycle) are rising, in line with the QCI (my monthly GDP proxy).  

Latest datum for each time series is February, except for the QCI which is January.

My conclusion: despite the fall in the ISM in February, the other "early indicators"  (including the PMI) all point up. 

 

US GDP growth likely zero in Q2

I started calculating my QCI (Quick Coinciding Index) back in 1986, when my (first) PC only had 220K of memory.  There wasn't enough memory to calculate a full coinciding index with several components on that primitive machine.  I had to write programs that rolled matrices out of memory onto the disk to do the calculation of my US coinciding index, and then roll them back when I needed them, and that, combined with the slow speed of the microchip, meant that the calculation of the full coinciding index was very slow.   Hence the quick coinciding index.

It's nothing special, just an average of non-agricultural employment, industrial production and the volume of retail sales.  The close fit with GDP goes back decades.  

The chart shows the QCI through June 2023.  If the relationship between real GDP and the QCI holds up, expect GDP to reach zero YOY in Q2.   Not quite a recession.  Yet.

Same timescale comment applies as with the previous post.

[Update:  The "flash" estimate by the Bureau of Economic Analysis suggests GDP grew in the second quarter, by a strongish 2.4% annualised.  The perils of forecasting a single data point instead of a trend!  Still, this is a provisional estimate, and I've seen quite large shifts between the first stab at the latest quarter's growth and subsequent estimates when better underlying data become available.]

US small business optimism index slides to new lows

 The NFIB (National Federation of Independent Business) small business optimism index fell to a new 10-year low in April.  As you can see from the chart, the NFIB optimism index leads the business cycle (as represented here by the QCI, shown as a deviation from its moving trend) by many months at the peak of the cycle, but by only a few months at the trough.  Note though that the NFIB index rebounded a little in 2022, leading the rebound we've seen in the PMI and ISM, but has resumed its decline.  We're not yet at its GFC lows, but we're getting there.

click on chart to see clearer image

Overtime hours rally, but is it a cyclical turn

 Overtime hours in manufacturing correlate well with the cycle.   They ticked up in January, before retreating a little in February.  We'll see the next data point on 7th April.  In the meantime, my forecast is that they might have temporarily stopped falling but that this pause will last only a couple of months before it resumes.  

US monthly GDP proxy starts to fall

 My US QCI (a monthly GDP proxy; QCI  stands for "Quick Coinciding Index".  Yeah, I know --- as if there isn't already enough jargon in economics!)  has started to fall.  As you can see, in the chart below, it is very well correlated with GDP, though it is more volatile.  Data through December for the QCI; through QIII  for GDP.  

Remember, economies are like tankers; even if you turn off the engines it takes a tanker 8 kilometres and 20 minutes to come to a stop.  Economies respond with a long, and variable, lag to rising interest rates.  This time a year ago, the Fed Funds rate was zero.  Now it's 4.3%.  Expect further declines in the US economy.  In March last year, the QCI was rising at an annualised rate of 13% per month; now it's falling by an annualised rate of 1%, which appears to be accelerating.  What's the bet that by June, the Fed will have stopped raising rates?  But they'll prolly wait too long to cut rates.  Alas.