Economic Notes: Rear View and Side View Mirrors
5/24/2010
By Patrick O'Keefe, Director of Economic Research, J.H. Cohn
Later this week, the Bureau of Economic Analysis will publish its second estimate of Gross Domestic Product (GDP) for the first quarter (Q-1) of 2010; a final revision will issue in late June. Although the revisions are more accurate, they are adjustments to the rear view mirror and shed little (if any) light on current conditions.
A “real time” snapshot of economic conditions is provided by the Chicago Fed National Activity Index, a composite of monthly indicators tracking output, employment, income, consumption, and housing. It isn’t a windshield view of what lies ahead, but a side view mirror of what just passed.
The index compares current conditions to the historic trend. It also indicates whether the economy is cyclically expanding/contracting. A three-month moving average smoothes the influences of month-to-month volatility.
Based on data available through May 20, the index is at its highest level since February 2007 and near its historic trend.
The most recent data confirm a broadening in the economy’s overall growth, but also suggest that the rate of growth has slowed since earlier in the recovery.
Business credit conditions may be easing, if only grudgingly.
Since bottoming at the end of 2009, nonfinancial companies’ commercial paper has increased by more than one-third (34.2%), with much of the increase scored since April. While this may put to rest the view that business credit was declining due to a lack of demand and an unwillingness to lend, conditions are certainly not robust. Outstanding paper remains well below pre-recession levels.
Although the Federal Reserve’s quarterly survey of senior loan officers found that most banks had kept lending standards unchanged (i.e., restrictive), several larger institutions reported some easing for firms with annual sales of $50-plus million.
The Federal Reserve survey was conducted in April. Coincidentally, bank loans to businesses rose for the first time since October 2008. Whether this signals a broader shift in bank lending -- and whether it will extend to smaller businesses – remains to be seen.
An early estimate of GDP for Q-2 will not be available until late July, by which time the data discussed above will be in the rear view mirror. In the side view mirror, however, the data indicate that the economy is moving in the desired direction – but still below the speed limit.
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The statements, opinions, and conclusions contained herein are based solely upon the author’s own studies, research, and personal experience. Neither J.H. Cohn LLP nor the author makes any representation or warranty as to the accuracy or completeness of this information. J.H. Cohn LLP and the author expressly disclaim any liability for any loss or damage which may be incurred, of any kind whatsoever, as a result of or arising from the use of any of the information contained herein or reliance on the accuracy or completeness of it.