In July, the community was informed that two leading indicators were "crashing;" the ECRI's leading indicator index had dropped to levels that would indicate a double dip recession was around the corner and the Baltic Dry Index was down as well. In response, I noted that the organization that created the ECRI index did not agree with the interpretation of pending doom. In addition, at that time, the conference Board's leading indicators were not "crashing."
Today we learned things are much different:
A measure of future U.S. economic growth rose to its highest level since May in the latest week, a research group said on Friday.
The Economic Cycle Research Institute, a New York-based independent forecasting group, said its Weekly Leading Index rose to 127.4 in the week ended December 10 from 126.5 the previous week, originally reported at 126.4.
In addition, the Conference Board reported today that
Says Ataman Ozyildirim, economist at The Conference Board: "November’s sharp increase in the LEI, the fifth consecutive gain, is an early sign that the expansion is gaining momentum and spreading. Nearly all components rose in November. Continuing strength in financial indicators is now joined by gains in manufacturing and consumer expectations, but housing remains weak."
While the Baltic Dry Index is still down, the Economist noted there is a fundamental reason for that:
here are growing doubts, however, about what the Baltic Dry is actually signalling. The confusion is whether the index is saying more about the supply of ships than the demand for their cargoes. The index spiked dramatically in 2008 as China’s imports of commodities soared at a time when the supply of ships was constrained and port congestion added to demand for capacity (see chart). The financial crisis soon caused the index to fall back but not before this period of dramatic growth in demand from China had prompted a surge of orders for bulk carriers, especially the very largest ones that are used on the China trade routes.
These ships take around three years to come on-stream. Despite the cancellation of some orders the new ships are now flowing in: in the first half of this year the global fleet increased by 23% as new vessels came into service at the rate of 16 a month. There are now 23 such vessels arriving each month, adding to oversupply.
Other freight indicators are less negative than the Baltic Dry. Container-shipping rates are holding pretty steady as companies decide to accept a lull in traffic rather than cut rates to stimulate demand. And according to the International Air Transport Association, an airline grouping, air freight is booming, up by 34% in May on a year-on-year basis. But air freight measures trade in high-value finished goods, whereas bulk ships reflect demand for the raw materials of which they are made. If there is more to its decline than supply-side distortions, the Baltic Dry could yet be a grim warning of what is to come.
So -- why mention this now?
Two reasons: once again, we've learned that the Zombie Bearinterpretation of the economy is wrong. The economy is out of the recession and has grown for five straight quarters. All indications are it will continue to do so. And while some have argued this is only because of ultra-low interest rates and therefore we're simply inflating our way out of the recession, the reality is that every central bank lowers interest rates during a contraction in order to inflate the economy out of expansion. That's why they always lower rates when growth turns negative. (In addition, Brazil -- which has stated the US is engaging in a global currency war also has very high interest rates, which are a strong net positive for their currency).
But more importantly, there is this. If Daily Kos wants to be taken seriously, they need to re-enter the "reality based" world -- that is, the world where people do not turn their head to data that contradicts their world view. While I have seen Democrats correctly lampoon Republicans for their denial of climate change, the left is equally guilty of complete and abject denial when it comes to the economy and economic data. The recession ended in 2009 -- over a year ago. Yet there is little acknowledgment of that fact. Instead, according to the prevailing DK wisdom, the economy is still on the precipice, ready to fall into the abyss.
Once again, we have learned that is not true.