Generally Good Health

On its third and final estimate of how fast the economy grew in the second quarter, the Bureau of Economic Analysis reported today that the economy grew at a 1.4% pace from April to June—slightly faster than originally thought. That's good, but not great, which further confirms something Dan and I have talked about for years now—the U.S. economy is in a slow-growth, not no-growth environment.

Some of that growth remains in the housing market, which continues to expand. With new home sales numbers in, we now have a picture of August from the perspective of the home builder and the home buyer. After a whopping jump in new home sales in July, the number dropped big in August. Yet, over the past year, new home sales are still up more than 20%. The median price of a new home is down, but this number moves around quite a bit, so take it with a bucket of sawdust. Sales of existing homes have fallen a bit of late but are still up slightly versus a year ago, and prices are up over 5% compared to August 2015. Inventory of homes is low across the market, which means builders have their work cut out for them, and sellers who are on the fence may see reason to finally list their homes as demand remains steady.

Manufacturing remains weak. The latest durable goods report (really, the capital expenditures report) was, at best, so-so. That isn't a positive for the industrial part of our economy, but remember that we are not a manufacturing economy, though the Presidential debates make it sound as if we are. We aren't. We are a service-oriented economy, having traded low-wage manufacturing jobs for higher-wage service jobs, particularly in the "knowledge industry," across a broad portion of the U.S.

For those who think that this slow growth is the precursor to recession, Moody's economics group tallies a metric called "risk of recession," which looks at expectations for a recession over the next six months. They look at things like housing permits, unemployment insurance claims, the dollar compared to other currencies, consumer confidence, stock prices, the yield curve and the VIX.

In August, their calculations showed that the risk of a recession occurring over the next six months was just 13%. Is that good, or bad? Well, the number averaged 51% in 2008 and peaked at 62% in February 2008. Since the end of 2009, there have been a few false positives, though the metric never got above 50%. A reading of 13% suggests a very low risk of a recession in the near future.



Oil traders got excited about OPEC's commitment to curtail production to try and boost prices longer-term. Oil moved up almost 5% on the news. Energy Index was up 4.6% and Energy gained 4.1% on Wednesday. Oil was up another percent or so this morning. But can OPEC really control its producers? It never has in the past. Why now? Let's see if the oil price stays sticky.

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