This is just a quick post primarily designed as my update on US jobless claims. But because there has been other data on the US economy, I thought I would bring that data in to make a whole picture of where we are.
The composite picture I am getting shows the US economy still in that 2%ish channel it has been in for some time. This is lower than certainly President Trump wants and it is also lower than growth levels at cyclical peaks in the past. But it is still far from recession.
The upward revision to Q4 GDP to 2.1% from 1.9% is the biggest confirmation here, the rolling year-on-year growth levels are now heading back to 2% from the dip down to 1.27% in Q2 2016. Note that consumer spending rose at a 3.5% annualized rate in the fourth quarter.
Now clearly, this is backward-looking data, which is why I am looking for signs of coincident or forward looking data. On jobless claims, which I see as relatively real-time, we saw claims come in at 258,000, down 3,000 but pushing up the 4-week average to 254,250. This compares favourably to the year prior’s 268,000 level and suggests no income shock due to increased joblessness which would stall consumer spending has occurred.
But the consumer spending data that came out today did show weakness. Even though it is expected to slow in Q1, the 0.1% gain in February was below the 0.2% forecast. Year-on-year growth is still 2.6% though.
The bottom line here is that the economy is doing just fine right now. There are no real indications that growth is about to change dramatically. Having said that, there have been concerns about slowing credit growth. Arguably that data is backward looking, lagging the fall in real GDP that bottomed in Q2. So a forward-looking view would discount the credit growth story somewhat.
What matters on the credit front is credit quality and credit writedowns. And what we are seeing there is not positive. I continue to believe that auto loans will be a canary in the coal mine on credit; if the auto sector can work through its inventory and loan delinquencies, there is no reason to believe this expansion won’t continue. We saw auto sector problems in 2014 and those problems diminished, even as the oil sector turned down. But, if auto credit issues continue to rise from here, I believe we would start to see writedowns that would presage a pullback in consumer lending.