US Business Cycle Risk Report - Tuesday, Jan. 21

The US economy continues to show signs of stabilizing after last year’s second-half slowdown. In addition, revised projections for the business cycle trend hint at the possibility that growth is rebounding in early 2020. Although an upbeat outlook for this year remains tentative, today’s forward review points to a mildly stronger output for the US in the first quarter.

Before we get to the forecast let’s review the actual data that profiles the trend through last month. In the realm of what’s highly probably, a broad-based profile of key economic indicators continues to show that the recent downshift in output has stabilized. That counts as progress relative to previous worries that 2019’s second half slowdown was accelerating.

It’s been clear for several months that the slowdown’s trajectory was leveling off. Last month, for example, The Capital Spectator advised that “there are more signs that the slowdown of late has run its course.” The analysis still holds today, based on analysis of published numbers that track the economy through December, as shown in the table below. (For a more comprehensive review of the macro trend with weekly updates see The US Business Cycle Risk Report.)

Aggregating the data in the table above via a pair of proprietary business-cycle benchmarks points to a mild uptick in the macro trend. The Economic Momentum Index (EMI) and the Economic Trend Index (ETI) bounced slightly in December. Although both benchmarks have declined substantially relative to recent history, there are nascent signs that the slide is over. Even after the recent slowdown, ETI and EMI have remained above their respective tipping points that mark recession (50% for ETI and 0% for EMI). Meanwhile, near-term projections for ETI (shown below) suggest that these indicators are on track to turn mildly higher through February. (For details on the design and interpretation of ETI and EMI, see my book on monitoring the business cycle.)

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