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A Framework That Provides Clarity

During periods of “low visibility,” confusion reigns: for every indication of one trend, there seems to be a countertrend. The key is to glean from the collective wisdom of reliable leading indicators a clear signal that the economy is headed for a turn.

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Near-term Pop, Long-term Drop


U.S. economic growth in a cyclical upturn since mid-2016:

•    Year-over-year (yoy) GDP growth remains near a 1¼-year high, and could get to a two-year high in Q2 2017
•    Industrial production growth (yoy) is already at a two-year high
•    Jobless rate is at a ten-year low
•    Real consumer spending growth bottomed out last spring at around 2%, but has stayed closer to 3% since last summer

Moreover, the U.S. economy has a good tailwind from rising global growth.

Our leading indexes of economic growth saw these upturns coming, and they’re still holding up.

Bottom line: Cyclical prospects remain the strongest they have been in years. Which is why – unlike last year – the Fed is finally able to implement a rate hike cycle. 

But there is a new cyclical slowdown that’s coming into focus – it doesn’t change anything I’ve just said – and that’s for global industrial growth. Following the downturn in our Global Industrial Growth Long Leading Index, we see short leading industrial indexes, like growth in the JoC-ECRI Index, which measures sensitive industrial material prices, starting to fall in line.

Shorter-term cyclical swings notwithstanding, as we’ve been emphasizing for years, structurally, growth is limited by simple math: the economy’s potential growth rate depends on productivity growth and demographics, both of which remain dismal, and neither of which can be turned around in the foreseeable future. Ben Bernanke’s recent comments are in line with our view, which we first started sharing in 2008, pre-Lehman.

Around the world, economic policy uncertainty is around the highest on record. But the economic cycle is almost always more powerful, which is why having a solid cyclical framework allows us to cut through this noise and uncertainty, and foresee the direction of growth over the next several months.


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