Is The US Growth Slowdown Stabilizing?

Bloomberg reports that “there are reasons to expect the current slowdown [in the global economy] will prove short-lived.” The same analysis may also apply for the US economy, according to The Capital Spectator’s business-cycle analytics.

Let’s start with considering the global macro trend. According to Bloomberg,

Bloomberg Economics, Deutsche Bank AG and Morgan Stanley are among those whose economists reckon the slide will bottom out in this quarter or next before an acceleration later in the year.

“Put the Federal Reserve pause, trade truce, and China stimulus together and we’re looking for a trough in the first quarter and very moderate pick up ahead,” said Tom Orlik, chief economist at Bloomberg Economics.

There are clues pointing to a similar transition for the US economy, based on a pair of benchmarks that track the country’s macro trend: the Economic Trend and Momentum indices (ETI and EMI, respectively), which are featured in The Capital Spectator’s monthly updates of the US business-cycle risk profiles (here’s last month’s update).

Recall that ETI and EMI offered early signs that US output was slowing, well before the crowd was focused on the deceleration. Last July, for example, the two benchmarks were sliding from previous peaks. Noting the downshift, we reported at the time that “near-term estimates of the US business cycle point to a mild deceleration in the trend.”

It’s easy to look back now and conclude that the slowdown was obvious. But in July 2018 the markets and the media were focused on the acceleration in growth in the first half of the year – an acceleration that peaked in the second quarter when GDP increased at a strong 4.2% pace (seasonally adjusted annual rate).

The subsequent slowdown that has cut GDP growth in each of last year’s Q3 and Q4 was anticipated by the downturn ETI and EMI, which have fallen sharply following peaks in early 2018. For example, ETI is currently at an estimated 71.4% for March vs. last July’s 83.3% and the 88.1% peak in 2018’s Q1.

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