Led by declines in production related indicators, the Chicago Fed National Activity Index or CFNAI decreased to +0.02 in December from +0.27 in November.
The index’s 3 month moving average, CFNAI-MA3 edged up from -0.13 in November to -0.11 in December, its tenth consecutive reading below zero which suggests that growth in national economic activity was below its historical trend.
What does this mean?
When the CFNAI-MA3 value moves below -0.70 following a period of economic expansion, there is an increasing likelihood that a recession has begun, we have not touched or gone below -0.70 since the crash of 2008. Conversely, when the CFNAI-MA3 value moves above -0.70 following a period of economic contraction, there is an increasing likelihood that a recession has ended, which occurred around April/May of 2009. Looking at the chart, we came very close to the index’s forecast of likely recession this past fall….close-but no banana. Thankfully.
This week’s Advocacy News Report on North American Manufacturing published by the Metals Service Center Institute
A recent survey by the Job Creators Alliance found 70 percent of small business owners “believe that Washington’s policies have become more hostile toward free enterprise in recent years.” Health care regulations-including employer mandates-stemming from the 2010 Affordable Care Act are certainly one possible reason behind that sentiment. According to the Wall Street Journal, small businesses have already taken the new rules into account for their 2013 operations. Why? “Even though the rule doesn’t go into effect until early 2014, a business could be subject to the so-called employer mandate if, during 2013, it averages 50 or more full time employees (defined as those working 30 hours per week or more).”
Thursday the Conference Board (www.conference-board.org) released its Leading Economic Index which rose 0.5 percent for the United States, to 93.9 following no change in November and a 0.3 percent increase in October.
Says Ataman Ozyildirim, economist at the Conference Board: “the U.S. LEI rose sharply in December, led by a large improvement in initial claims for unemployment insurance….The increase in the LEI brought the 6 month growth rate well above zero, with roughly two-thirds of the components rising in the last 6 months. However, consumer expectations and manufacturers’ new orders remain weak.”
Says Ken Goldstein, economist at the Conference Board: “The latest data suggest that a pickup in domestic growth is now more likely compared to a few months ago. Housing, which has long been a drag, has turned into a positive for growth and will help improve consumer balance sheets and strengthen consumption, however, for growth to gain more traction we also need to see better performance on new orders and acceleration in capital spending.”
This is all encouraging news except for the last statement by Mr. Goldstein regarding new orders and capital spending. Yes, we absolutely need to see healthy new orders growth and increases in capital spending (we are nothing without them) but higher taxes on business (and individuals), the upcoming burdens of the Affordable Care Act, the likelihood of continued overspending and more tax increases by the Federal government, the probable consequences of those actions. These, plus an anti-business climate in Washington and a myriad of other problems are what is stifling American business, which also affects the rest of the globe.
We all see the stock market making new highs; we all see the housing market finally recovering and a healthy automotive, truck and light truck manufacturing sector. So why does the business climate seem sluggish despite the positive news? I believe it stems from the issues outlined in the previous paragraph. However, on a bright note, in spite of and through all of the negatives, the U.S. economy continues to show growth. What an amazing engine for prosperity it is, especially when the free market system is allowed to operate as a free market system.
God Bless America