If you’ll recall, much of the second and third quarters of this year seemed to bring one gloomy report after another, however, we were reluctant to jump on the double-dip recession band wagon. While we certainly do not want to pat ourselves on the back for so far being correct, we do continue to believe that the US will avoid a double-dip recession, and the recent good news seems to support that view. Keep in mind, though, that if the Europeans fail to get their sovreign debt houses in order, then all bets are off.
The recent positive earnings reports coming from a wide variety of companies was joined yesterday by an improved employment picture. In addition, various regional manufacturing indices, retail spending reports, and the LEI (index of leading economic indicators) have all been moving positively. The LEI is of particular interest because, as we mentioned previously, it has historically been a very good economic indicator and has generally led GDP by two quarters or so. In the first half of the year the LEI decelerated rather sharply, however, it never entered negative territory. Recession looms when the LEI has had a sustained contraction which results in the year-on-year rate of change moving into negative territory. The LEI has now been on the upswing again, so let’s hope the Europeans get their sovreign debt issues under control.
Next week we will be watching Tuesday’s report on Consumer Confidence, Wednesday’s reports on Durable Goods Orders and New Home Sales, Thursday’s reports on GDP and Jobless Claims, and Friday’s report on Personal Income and Outlays.