Although there's substantial uncertainty over the near-term economic outlook in the minds of some, I'd like to go out on a limb and say that sustainable growth is taking place even as you read this page. I feel that, on balance, the economic data released at the end of last year provides some encouraging news.
November and December data suggest that while the contraction continues, its pace has eased considerably. For example, initial jobless claims were running at around 490,000 per week at the end of November and first of December. At the time of this writing, they had fallen to around 384,000. In addition, the four-week moving average for initial jobless claims fell to its lowest point since the attacks, which suggests that the worst of the contraction is likely over.
Consumer confidence has risen slowly but steadily since it bottomed out following the Sept. 11 terrorist attacks. I think the steady gains in confidence are most likely due to the success the military has had thus far in Afghanistan, mild winter weather and falling fuel costs.
Especially encouraging are signs that the beleaguered manufacturing sector — the most important sector for trucking — is approaching its trough. The pace of the industrial production contraction slowed considerably in November, down to 0.3% from October's 0.9%. The latest data on sales and inventory levels in the entire production and distribution pipeline (manufacturing, wholesale, and retail) indicate that although sales continue to struggle, inventories are being liquidated at a very fast rate. This continued fall in inventories is very good news. It suggests both that production levels are not likely to fall much further, and that when demand begins to improve production will improve quickly.
Particularly encouraging for a near-term end to the fall in manufacturing is the fact that the new-orders index of the National Association of Purchasing Managers Survey rose solidly back above its 12-mo. moving average. This suggests that the sharp contraction in manufacturing following the attacks is nearing an end.
Taken together, these indicators suggest that the economic contraction will end earlier this year than most people expected.
However, while we have reason to be optimistic, we're certainly not out of the woods yet. Our economy still needs a shot in the arm. Let's hope legislators can agree on a stimulus package.
Wholesale sales numbers are part of the negative picture, declining a considerable 1.4% in October. This sharp fall indicates that conditions remained depressed for merchants. In November, retail sales fell by 3.7%, the largest monthly decline since the start of retail sales reporting. The majority of the fall was the result of vehicle sales coming back down to earth; they fell 11.9%. However, even excluding autos, retail growth remained negative at -0.5%.
The good news is that inventories continued to fall rapidly, suggesting that production levels are not likely to fall much further. When consumer demand improves, production should improve quickly. Consequently, I expect to see some growth in February and even more in March. To further enhance the outlook, the decline in interest rates is still having a positive impact for consumer investment goods.
During November, residential construction and permits rose considerably from October, exceeding expectations. Housing starts rose by 8% to an annualized pace of 1.65-million units, while permits increased by 5%. to 1.56 million units. With this jump, housing starts stand almost 6% above the same time last year.
While it may not be robust, I believe the recovery is in place. Sleep well.
