Monday, October 27, 2014

Long Recovery, Long Expansion in US (excerpt)

Despite the steady improvement in the Index of Coincident Economic Indicators (CEI) since the end of the last recession, there continue to be lots of downbeat assessments of the performance of the US economy during the current expansion. But there is potentially an important upside. Consider the following:

(1) A very long recovery. It has taken 68 months--from January 2008 through October 2013--for the CEI to fully recover from its severe decline during 2008 and early 2009. The previous five recovery periods averaged 26 months with a range of 19-33 months.

(2) Looking forward to a long expansion. The good news is that the average increase following each of those recovery periods through the next peak was 18.6% over an average period of 65 months with a range of 30-104 months. If we apply these averages to the current cycle, then the CEI would peak in 54 more months during March 2019 with a substantial gain from here.

By the way, also looking forward to a long expansion are manufacturing companies, as evidenced by soaring new orders for industrial machinery. They jumped 5.9% during August, and 28.4% during the past three months. They’ve been in record-high territory since March. Also rising to a record high were new orders for metalworking machinery.

Today's Morning Briefing: Bottom of the Barrel? (1) From “Peak Oil” to “Trough Oil.” (2) Oiling the secular bull market in equities. (3) Transports at record high as Energy loses energy. (4) Raising Energy sector back to market-weight because stocks are cheap. (5) Downside of oil prices is a known unknown. (6) Saudis can inflict only so much pain on others before it hurts them too. (7) China is bargain hunting. (8) Technology could reduce breakeven for shale oil producers. (9) More upside for US economy following long recovery. (10) Industrial machinery orders soaring. (11) “St. Vincent” (+ + +). (More for subscribers.)

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