Old Normal

Americans seem to have decided to tune out all the noise coming out of Europe, the Middle East, and Washington and get back to business. They want to get back to the old normal. While Bill Gross sees a world full of new normals and paranormals, the old normal business cycle continues to show that it is still in gear.

In the chart above, I overlay the performance of initial unemployment claims following the past four cyclical peaks. The latest cycle looks just like the past three cycles and even the earlier ones too. Jobless claims spike up in recessions. They peak at the end of recessions. They fall sharply early during recoveries. Then they meander for a while at relatively elevated levels above 400,000, causing widespread anxiety that the recovery is jobless. Then they drop closer to 300,000-350,000.

That pattern seems to be playing out again and is being confirmed by lots of other economic indicators showing that Americans are getting back to business and doing their darnedest not to get distracted by the apocalyptic scenarios that have been in fashion since the near-death experience of 2008. Let’s review the latest batch of upbeat indicators that confirm the happy trend of initial unemployment claims:

(1) Manufacturing is humming along. Factory output soared 0.7% during January led by a 6.8% jump in motor vehicle production, which accounted for more than half the gain. Also driving the index higher was a 1.8% increase in business equipment, which was attributable to a 2.5% increase in transit equipment, along with gains of 1.5% in industrial and 1.8% in information processing equipment. The latter is at a fresh record high. Auto assemblies jumped in January by 8.2% to 10.2 million units (saar), the highest pace since February 2008.

The capacity utilization rate is tracing out an old normal V-shaped recovery. It rose to 77.0% in manufacturing during January. That’s the highest since April 2008. The utilization rate for selected high-tech industries (Computers, Semiconductors, and Communications Equipment) dropped again last month from a January 2011 peak of 80.8% to 69.5% this January. Excluding these industries, the utilization rate for low-tech industries remained at 78.9%, the best since June 2008. Among the industries with the tightest capacity were Machinery (85.0%), Paper (83.8%), and Petroleum (87.9%). Capacity in the auto industry jumped from 60.5% near the end of 2010 to 71.9% in January, the highest since August 2007.

(2) Homebuilders continue to see better signs. Housing starts rose last year to 657,000 million units (saar) during December, up 25% y/y. That improvement was led by a 78% increase in multi-family housing starts. Now comes the latest survey data from the National Association of Home Builders (NAHB) showing that single-family housing starts may join the housing recovery this year. The NAHB’s Housing Market Index is a good leading indicator of such construction activity. Debbie reports that the index rose for the fifth month in a row during February to the highest reading since June 2007.

(3) It’s sunny in New York. The FRBNY’s February Empire State Manufacturing Survey indicates that manufacturing activity in New York State expanded for a third consecutive month. The general business conditions index rose six points to 19.5, its highest level in more than a year. The new orders index, at 9.7, was positive but down slightly, and the shipments index was little changed at 22.8. In a special question about their capital spending plans, substantially more respondents indicated that they planned increases (46%) than reductions (25%) in overall capital spending in 2012. (More for subscribers.)