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October 20, 2006
The view under The Street Light is that things may be headed south for the U.S. economy, and at Econbrowser Jim Hamilton is spot on regarding the equivocal picture being drawn by the incoming data. Still, I'm feeling oddly optimistic. I guess I'm not alone. From The Wall Street Journal (page A10 in the print edition):
Leading economic indicators pointed to slower U.S. economic growth in September.
Separate reports showed that factory activity in the Philadelphia region was flat in a mid-October reading even as manufacturers remain optimistic, and that weekly U.S. jobless claims hit a four-month low.
The Conference Board reported Thursday its index of leading indicators edged up just 0.1% to 137.7 in September, but noted that consumer expectations have improved. The index fell by a revised 0.2% in August. Economists had expected a more robust 0.3% advance last month.
"The economy has slowed but the evidence to date doesn't suggest it will stall or go into a recession," said Ken Goldstein, an economist with the private research group. "To the contrary, the economy retains considerable strength," given the rise in stock prices and drop in energy prices, he said. Mr. Goldstein also noted that employment remains robust and inflation relatively low.
It's not that we are lacking negatives, of course:
The group noted that the leading index has fallen in five of the last eight months, and from March to September, the index is down by 0.9%, a 1.7% annual rate decline.
The Federal Reserve Bank of Philadelphia reported that a gauge of manufacturing activity in its region slipped to -0.7 in a mid-October reading from -0.4% in September... Negative readings indicate a contraction in activity.
But we know that the third quarter was bad, and this is relevant too:
The findings of [September Philadelphia report], however, weren't borne out in other regional manufacturing surveys, or in the Institute for Supply Management's national report...
Expectations for future manufacturing growth improved after last month's sharp decline. Indicators for future orders, shipments and employment were all higher.
And that's the thing that keeps sticking in mind. In my line of business I have the opportunity to hear from a lot of people who are, as they say, close to the ground -- folks actually making stuff, hiring people, extending loans, putting together deals. My thoroughly unscientific sense is that the distribution of beliefs out there suggests things are more likely to get better than get worse.
That does not apply to the housing market, of course. But, for reasons I'll detail in a later post, I'm beginning to wonder about the reach of developments in that sector. I'm not quite ready to take the anti-Roubini bet with the degree of confidence that Nouriel himself puts on his recession call. But I'm getting there.
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