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Tuesday, January 29, 2013

Durable goods and LEI

The durable goods came in better then expected, but was it really.  This chart actually surprised me.  Check this out.


The red line is the full durable goods data and the blue line is without transportation and defense.  The blue line would seem to confirm the general weakness seen in the manufacturing data.  This looks consistent with a recession starting last year.  It certainly is not consistent with all the optimism these days about the U.S. economy.

This chart is of the LEI, which I find often turns around the same time as the market.  It therefore is not all that useful in and of itself for stock market timing.  Here is the current chart.


This chart show how this recovery has been weak compared with those in the past.  The index is still quite a ways off the high.  So far the LEI has not rolled over like it normally does before a recession starts.  This is not consistent with a recession.  However, the LEI almost always turns up sharply at the end of recessions and does not really lead very well in that case.  Even though it has normally turned down before a recession starts, we have never had a zero interest rate policy from the FED before.  We don't really know for sure if the old rules still apply.  I think this next chart shows that things may be somewhat different this time.


This really makes this recovery look extremely weak.  It is also at levels that normally would indicate we were in a recession.  It shows a pretty dramatic drop in economic activity that started in the middle of last year.  That seems to line up with the blue line in the durable goods chart above and with the manufacturing data we have seen over the last six months.

This data does not seem to indicate the economy is on an uptick.  With extra money coming out of paychecks now I find it hard to believe the economy is set to soar as some of the pundits on TV would have us believe.  I guess we will see.


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