Economic Insights - September 2018

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The first eight years of the current economic expansion-Q3 2009 to Q4 2016 -encompassed one of the weakest recoveries on record, averaging just 2.2 percent per year compared to the 4.3 percent average annual growth rate of previous expansions. And, in Q2 2018, we ended the first 12-month period in more than a decade when growth exceeded 3 percent.

This and other traits in this recovery suggest it could last longer than most analysts can imagine. Inflationary forces which were widely predicted after QE was announced haven’t materialized; in fact, inflation seems fairly-well contained. The Fed has been very transparent regarding its intention to error on the side of caution in raising rates. As a result, the risk of a monetary policy error, which is how this expansion will probably end, could be a long way off.

As of this writing, real economic growth in the second quarter of 2018 is reported to be 4.2 percent and we don’t see signs of a recession anywhere on the horizon. One indicator to look at for signs of a looming recession is the leading/coincident indicator ratio, which on average peaks about 2 years ahead of a recession (with a median lead of 2.5 years). Right now, it’s still rising.

Similarly, the 4-week moving average of “unemployment claims” is at the second lowest level in 49 years. History tells us that this average will start rising at least 7 months ahead of the next recession. When that happens, it’ll be time to start being cautious.

Source: Bespoke
Data: Federal Reserved Database.

Coincidentally, July 2018 industrial production was also reported to be up at a 4.2 percent annualized rate, reaching a new all-time high!

And, the Conference Board reported that its consumer confidence index rose to 133.4 in August, up from a reading 127.9 in July. That was the highest reading since confidence stood at 135.8 in October 2000!

Meanwhile, American consumers seem to be in good control of their finances. The New York Fed’s quarterly household debt survey showed a continued collapse in the share of consumers facing “collection action” for bad debts.

Quarterly data from the Mortgage Bankers’ Association relating to mortgage bankruptcy and delinquency showed similar results....

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