Business-Cycle Conditions

Costly Benefits Dampen Hiring -- May 7, 2012

Overtime and temporary employment increase as the tab for health care makes businesses balk at adding permanent jobs.

To accommodate the growing population and begin making up for the millions of jobs lost during the recession, the U.S. economy needs to add at least 200,000 jobs a month. This isn’t happening. In March, the economy added 120,000 jobs, a substantially smaller increase than the average 250,000 monthly jobs added during the previous three months.

Businesses and consumers are driving the expansion. But lessons learned from the financial crisis are holding the pace of growth in check.

The economic recovery is well underway. But at a growth rate of less than 3 percent per year, its pace has been less than spectacular. In the early years of past recoveries, particularly those that followed the severe recessions of 1974-75 and 1981-82, the economy grew in excess of 5 percent annually.

The modest overall pace of expansion might seem surprising, given that AIER’s statistical indicators of business-cycle conditions continue to post widespread increases. The economy is being pulled along by demand from business investment and consumer spending on durable goods.

Economy Poised for Job Growth -- March 5, 2012

Lengthening workweeks driven by increased demand are setting the stage for more hiring. But changes in the workplace may alter historical patterns.

Housing Tests the Bottom -- February 6, 2012

Thanks to an upswing in the building of multi-family structures, the construction slump may be over. If the trend continues, the industry may never be the same.

The long downward slide in housing construction may be coming to an end. While the rate of new building remains below pre-recession levels, data for the past year show a sustained—if slow—upward trend in new housing permits. But a closer look reveals a changed market.

Job Growth Remains Elusive -- January 16, 2012

Some areas of the economy are gaining strength. But the labor market lags behind increased productivity.

Production in the U.S. economy finally returned to pre-recession levels in the third quarter of 2011. The economy is now producing the same amount of goods and services as it did in 2007. But it is doing so with 6.3 million fewer workers.

It’s Still a Drag -- December 2, 2011

Unemployment and slow growth of consumer spending are holding back the recovery. Lingering problems in Europe may add to the burden.

The recovery that started 30 months ago is proceeding, albeit slowly. AIER’s statistical indicators of business-cycle conditions show signs of strength in business activity, but also lingering difficulties faced by consumers. And the developing problem in Europe may further slow the recovery.

Robust for Now -- November 4, 2011

GDP growth is close to the long-term trend. But the driving economic engine created by consumer spending could run out of juice.

Despite persistently high unemployment and worries over the domestic impact of the global economic situation, the American economy posted a robust growth in the third quarter of 2011. In addition, AIER’s statistical indicators of business-cycle conditions signal that the expansion will continue in the near future.

With the recovery also slower than previously thought, the weak economy still has not surpassed pre-recession levels. Labor market conditions continue to impede growth.

In forecasting, the exercise AIER has practiced for more than 75 years through its business-cycle analysis, the latest economic data are not the final word. Revisions are inevitable and may be substantial, but will come only after some time.

This is one of the reasons AIER has stayed away from creating precise numerical forecasts for economic series. Given our current state of knowledge about the economy and the current state of data, it is close to impossible to create numerical forecasts accurate enough to be useful to our readers.

head-shot-steve-cunningham Growth may be slow, with taxes offsetting increases in income. But the economy shows surprising structural strength.

In a time in which so many are panicking, it pays to stay objective and stick to the numbers. All of our numbers point the same direction—the recovery will continue. To be sure, growth will be slow. But recession is unlikely.

Given the convulsions in the markets and gloomy headlines worldwide, this may seem an incredible statement. But 100 percent of our leading indicators with a discernible trend are trending upward. This is confirmed by the coincident indicators with 83 percent rising. Similar indices maintained by the Conference Board and others also support expansion.

Weakness is spreading as the jobless rate remains high and several parts of the economy adjust to changing times and struggle to recover from recession.

AIER’s statistical indicators of business-cycle conditions show that the economy continues to grow. But at the start of the third year of this expansion, the pace of growth is slowing, and signs of weakness are spreading among the indicators.

New orders for consumer goods and forcore capital goods slowed. Manufacturing and trade sales are falling, as is the index of common stock prices. Lingering problems on the employment front are reflected by rising initial claims for state unemployment insurance, a falling ratio of civilian employment to population, and a...

Lending Revives -- July 1, 2011

The banking sector shows signs of a return to normalcy. But will the trickle of lending unleash an inflationary flood?

AIER’s statistical indicators of business-cycle conditions keep pointing to a recovery. The percentage of primary leading indicators apprised as expanding is unchanged at 91. The economy’s rate of expansion, however, is slow. According to revised data, gross domestic product, the broadest measure of output, increased at an annual rate of only 1.9 percent in the first quarter of 2011. The recovery hasn’t done much for labor markets either. The unemployment rate remains above 9 percent.

But there are signs of a return to normalcy in other areas. Both consumer and business borrowing are expanding again after a long period of contraction....

polina-vlasenko Excessive debt keeps the private sector from taking off. No government stimulus can fix this.
by Polina Vlasenko, PhD, Research Fellow

Although the latest data show that the recovery proceeds, it is at a disappointing pace. With government stimulus efforts winding down, no strong source of growth yet has emerged in the private sector.

Among AIER’s primary leading indicators, 10 out of 11 series with a discernible trend are appraised as expanding. This leaves the percentage of leaders expanding unchanged from last month at 91. The cyclical score of leaders, which is based on a separate, purely mathematical analysis, decreased to 83 from 86 last month. A value above 50 for each of these measures suggests that continued recovery is likely.

The only leading...

polina-vlasenko The continuing woes of states that rode high on the real-estate boom are exerting a drag on the broader economy. Given the available tools, federal policy can’t fix this.
by Polina Vlasenko, PhD, Research Fellow

The strength of the recovery is not impressive. Moreover, aggregate numbers, including those that AIER uses for its statistical indicators, hide regional disparities. In the recession, some states were hit harder than others, and they are having trouble bouncing back. One consequence of this is that the national recovery remains sluggish.

AIER’s statistical indicators of business-cycle conditions suggest that nationally the recovery is likely to continue. Among our primary leading indicators, 10 out of 11 with a discernible trend are expanding....

polina-vlasenko People are spending more and cautiously borrowing. But no clear engine of growth has emerged to drive the still-modest recovery.
by Polina Vlasenko, PhD, Research Fellow

AIER’s statistical indicators of business-cycle conditions show that the recovery continues its slow progress. Among the primary leading indicators, nine out of ten series with a discernible trend are appraised as expanding—the same as last month. Seven indicators have reached new highs for the current cycle, but others have slowed. The cyclical score of these indicators, which is based on a separate, purely mathematical analysis, dropped to 86 from 93 last month. A value above 50 indicates that expansion is more likely than a contraction.

Data suggest strengthening in consumer spending and even some...

Persistent problems remain as lagging indicators weaken.
by Polina Vlasenko, PhD., Research Fellow

AIER’s statistical indicators of business-cycle conditions suggest that the pace of the recovery remains anemic. The overall picture presented by the primary leading and coincident indicators changed little from last month. But the latest data show growing weakness among the lagging indicators. This casts doubt on the strength of the recovery, which has not been very robust so far.

The percentage of leading indicators appraised as expanding stands at 90 (nine out of ten indicators with a discernible trend), up from 89 last month. The cyclical score of leaders, which is based on a separate, purely mathematical analysis, increased slightly from 92 to 93. Values above 50 indicate that a continued expansion is likely...

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This article is from the February, 2011...

A closer look at the expansion reveals that employment conditions vary by sector, occupation, and education, and that different industries are recovering at different rates.
by Polina Vlasenko, PhD., Research Fellow

New data show that the gross domestic product (GDP), the broadest measure of economic activity, increased by 3.2 percent in the fourth quarter of 2010, up from 2.6 percent growth in the previous quarter. While an acceleration of growth is a welcome sign, the growth is not yet rapid enough to quickly bring down unemployment. Further complicating matters, unemployment seems to be concentrated in occupations and industries that are unlikely to grow fast.

The current GDP growth rate is close to the average long-term rate of 3.3 percent observed during the post-...

As the recovery solidifies, businesses expand plant and equipment, but are slow to hire.
by Polina Vlasenko, Ph.D., Research Fellow

Continued expansion in production and moderate improvement in employment warrant guarded optimism about the economy. But a significantly brighter picture for the nation’s unemployed may still be a long way off.

Among coincident indicators, gross domestic product grew 2.6 percent in the third quarter of 2010, up from 1.7 percent in the second quarter. The index of industrial production also increased, continuing the trend that started in June 2009. Both series indicate that production is expanding.

Among the primary leading indicators, new orders for consumer goods and for core capital goods continued an...

AIER’s statistical indicators of business-cycle conditions show that the recovery is likely to continue. The growth rate of GDP, the broadest measure of economic activity, reached 2.5 percent in the third quarter of 2010, up from 1.7 percent in the previous quarter. While the pace of the recovery is accelerating, it is still not rapid enough to bring down unemployment rates.

Ask anyone on the street and they will tell you that it isn’t a recovery if the jobs aren’t coming back. And they aren’t.

This month, we downgraded our broadest jobs measure, nonagricultural employment, from probably expanding to indeterminate. A coincident indicator, it describes the current situation, and right now, it epitomizes the flagging economy. The series has been decreasing for four months. It seems that hiring of temporary census workers boosted employment for several months beginning October 2009. Once the census work ended, employment began to decline again.

Business-Cycle Conditions

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