The weekly leading indicators sets I track show a bottom in early
Mar. of '09 followed by a quick "V" bounce. So far, this suggests that
economic recovery can begin in Jul. of this year, in line with my
expectations going back to late 2008 (the stock market does not
carry a heavy weight in the combined set).
It is still early to look for an upturn right now. Thus, readings for
Jul. data on sales and production that are released in Aug. would show
the beginnings of an upturn, if my expectations are correct. It could
come sooner, but for now, I plan to monitor the lead indicators. The
track record for weekly data is not that smooth, and a trend, be it up
or down, can show backing and filling. Such may happen this time as
the bounce in the indicators has been strong off the get - go. I would
opine that one has to prepare for a setback or two in the weekly data
over the next couple of months. So long as there is a positive trend,
I am not likely to change my thinking.
However, I think it is fair to say that it is best to be a little anxious
over the next month or two, as there are a couple of important
differences in the current environment compared to previous
periods. One is the issue of how strong consumer preference for
liquidity may remain. Another is the large inventory of unsold new
homes. Finally, the banks and other credit intermediaries will have
to be tested if consumers do wish to spend more and come looking
for mortgages and loans.
It is unusual for leading indicators to jerk about so badly as to give
false signals, but it does happen. Thus as a defensive measure, my
plan is to monitor short term data closely to see if the indicators turn
indecisive or negative. If either happens, the trap you need to avoid
is to start thinking that re-development of a positive bearing is
right around the corner. The rule here? When an expectation is not
met, reassess, do not rationalize.
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