Growing Pain for the Green Sprouts
The economy doesn't usually move in a straight stair-step fashion each month.
To be intellectually honest, last week was bad for our green sprouts. After a month or two of reported economic data consistently beating forecasts, we saw a few clunkers, and the stock market reacted in kind. We had grown complacent that all of the statistics we track would continue to make nice sequential, linear improvement. Unfortunately, that just isn't reality.
When we looked back at several metrics over past recessions, we found that the economy doesn't usually move in a straight stair-step fashion each month. More typically the economy has some improvement for a while, followed by some retracement, then some more advances, and then perhaps another setback. The key to monitoring a turn seems to be to watch several statistics and to be particularly vigilant if some of the numbers go on to make new lows for the cycle.
The latest new initial jobless claims moved in the wrong direction, but remained better than the cycle lows of March. April retail sales, while disappointing for the second month in a row, were less bad than the month before. The data for the week included some positive news, but these reports are more secondary indicators, including the Empire State Manufacturing Index. We also had relatively neutral news on the inflation front with April numbers, excluding energy, proving neither too hot nor too cold. Industrial production was also still down for April, but less so than March and generally in-line with expectations.