And people are starting to wonder about the overall health of the US economy.
However, UBS economist Drew Matus argues that “trying to make sense of the cross-currents that have emerged in the US economic data stream” might not be the way to go.
“Rather than try to make sense of every odd data point, it may be helpful to focus on more timely, less managed data sets that could provide an early warning of economic trouble in the United States,” he argues in a recent note to clients.
In particular, Matus writes that he has “three favourite canaries” that he keeps an eye on to get a sense of what’s going on in the US economy: 1) the ISM services index, 2) initial unemployment insurance claims, and 3) bank lending.
And so far, he writes, all three are still looking pretty good because:
- Non-manufacturing activity offsets the relatively weaker ISM manufacturing surveys. Although the recent ISM surveys showed reduction in manufacturing activity, this is offset by continued relative strength in non-manufacturing activity, argues Matus. “Currently, combining both the … series suggests a healthy rate of growth in the overall economic activity,” he adds.
- Firms aren’t exactly mass-firing employees right now. Right now, we’re seeing all-time lows in the number of unemployment insurance filings (after adjusting for the size of the eligible population) — something that would probably not be the case if the economy heading for the dumps, writes Matus.
- Bank lending continues to grow. “Although loan growth can be fickle, if the economy was doing badly, we would expect to see loan growth falling, or at least slowing, not accelerating,” argues Matus.
“Significant economic weakness would likely show across these indicators in a timely way, something we see no sign of at the present,” he writes.
In short, “the birds are still singing.”