When all you read is gloom, turn here for a much different perspective.

Monday, November 2, 2009

US Growth Probably Now at 4.5 percent

The economy continues to rebuild itself and the manufacturing sector has now grown for three consecutive months. According to the Institute for Supply Management, their PMI registered 55.7 percent. That is 3.1 percentage points higher than the 52.6 percent reported in September. It was the highest reading for the index in over 3 years and manufacturing output month over month rose at the fastest pace in 63 months.

This year, the PMI has correlated extremely accurately with the growth in the overall economy. When annualized the current reading corresponds to a 4.5 percent GDP growth rate.

In more good news on Monday, the National Association of Realtors said its Pending Home Sales Index, rose 6.1 percent -- the index is now at its highest level in nearly three years.

An additional report from the US Commerce Dept showed that U.S. construction spending made its largest gain in a year in September. The report reflected a huge increase in private residential building -- the largest increase in more than six years.

In continued positive earnings news: For the first nine months of the year, Ford has now posted a $1.8-billion profit. That’s a $10.6-billion improvement from the same period a year ago. Surprisingly, Ford said that even without Clunkermania, it would have showed a profit. Further, Ford said it “expects to be solidly profitable in 2011, with positive operating-related cash flow.”

On the jobs front, the ISM's Employment Index registered 53.1 percent in October, which is 6.9 percentage points above the reading reported in September. This indicates the first month of growth in US manufacturing employment in over a year. Eight of the ISM's 18 manufacturing industries surveyed reported growth in employment in October.

To recap, the overall economy is now growing robustly, the housing market continues to recover steadily, earnings news continues to be extremely positive, and it now appears that we've seen the early concrete indications of employment growth.

While there continues to be fallout from the deep recession earlier in the year, it is becoming clearer by the day that upward economic momentum will persist and that this will not be a jobless recovery.


  1. I agree that there are a lot of very positive economic indicators. Unemployment claims is considered one of the leading indicators and has been getting better and better. However, what do you have to say about the coming 'Asset Bubble' that economists such as Nouriel Roubini are predicting? I would be very interested on your take on that subject.

  2. Anonymous,

    Actually unemployment claims are a lagging indicator of economic conditions. So when employment begins to improve almost all other indicators will likely already be positive as well...

    Yes, there was a dot.com bubble, yes there was a housing bubble, yes there was an oil price bubble. Might there be other bubbles in specific industries and commodities?

    Yes, it is very likely.

    The extent and volume of any bubble will logically determine the extent of the outcome when said bubble breaks. Nouriel tends to be significantly over-dramatic to the negative... you will note his predictions earlier in the year that Q3 and Q4 growth would be lackluster are way off target. I suspect that his predictions in terms of when job growth will return, will also be quite inaccurate...

  3. Thank you for your terrific response.


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