Recap 12-22-11

Main Items:

  • US initial Jobless Claims declined to 364k last week vs 380k exp and 366k prev.
  • Chicago Fed National Activity Index declined to -0.37 in Nov vs -0.17 expand -0.13 prev
  • UMichigan Confidence improved to 69.9 in Dec vs 68 exp and 67.7 prev


The consensus expectation for US growth is a slowdown in 1H as a result of EU-related concerns, followed by a re-acceleration in 2H. This seems reasonable. After all, recent data has been quite strong. The initial jobless claims has declined to the lowest level since April 2008 last week! There are 2 reasons why the 2H expectation should not be trusted:
1) Goldman recently produced a research piece showing that a naïve prediction for GDP growth (i.e. a historical moving average) outperforms consensus forecasts for horizons more than 3 quarters out
2) As I’ve mentioned before, the low savings rate is particularly worrisome, and suggests that US growth is very vulnerable to shocks. Using data going back to the late 60’s, whenever the savings rate – inflation expectation differential (historical CPI was used prior to the 70’s when expectation data was not available) falls below 0, the US has seen an jump in initial jobless claims subsequently. The lags vary, however. In particular, there was a 1.5 year lag in 1999, and a 3 year lag in 2005 due to the effects of higher asset prices, which kept consumption, and hence the economy, going. However, the ‘real’ savings rate is now below 1%, meaning that any sort of wage slowdown or commodities increase could push the differential below 0. And that’s before we adjust for the fact that housing prices nationally are down ~4% YoY, and equities are flat. And the fact that growth in the rest of the world is falling. And the fact that there is a credit crunch in Europe.

Separately, is US Trend growth after 1973 much lower than prior periods? Chart below from Tyler Cowen.