Sunday, March 20, 2011

US Business Cycle Indicators

The employment cycle seems to be tracing out an old normal recovery. This is clearly the case for initial unemployment claims, which are repeating the typical pattern of going straight up during recessions and straight down during recoveries. The four-week average peaked at 643,000 during the week ending April 4, 2009. It has been just below 400,000 for the past three weeks. Claims might have fallen faster but for the onslaught of regulatory meddling from Congress during the past two years. That all stopped following the “regime change” during last year’s elections. I believe that the election results convinced profitable companies to proceed with expanding their payrolls, as they always have in the past when profits improved.

Global manufacturing is booming. That’s obvious in the data coming out of some of the world’s manufacturing power houses, such as Germany and South Korea. It is becoming increasingly obvious that US factories are also participating in the boom. The January and February surveys of manufacturing purchasing managers conducted in the US by the Institute of Supply Management (ISM) were surprisingly robust. The March survey could be even stronger based on the latest survey of manufacturing in the region around Philadelphia, where the diffusion index of current activity increased from 35.9 in February to 43.4 this month. This is the highest reading since January 1984!

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