In A Perfect Storm for Lead Economic Indicators? recently published in Seeking Alpha, Bruce Pile proposes a very insightful analysis of two sets of leading indicators and concludes that traditional indicators may no longer be effective. The main culprits? Monetary indicators which usually were good indicators of future economic activity do not perform as well today, now that we are stuck in a liquidity trap. Moreover, such indicators also performed sub-optimally over the last decade providing more evidence that monetary policy may have become a less potent tool than before to regulate economic cycles.
At this juncture of the economic cycle, the foretelling ability of leading indicators is especially relevant. Economic growth and unemployment have both performed relatively well lately and this performance is reflected in the rising value of the stock market. Yet, monetary policy is still very accommodative. Thus, traditional leading indicators point to a strong U.S. economic recovery.The economic outlook for the next few quarters will be determinant for both, our economic future (we could finally dig ourselves out of the recession or we could find ourselves into much deeper troubles) and our political future. On the latter, while I am sure that economic growth will help decide the fate of the next elections, I am less convinced that it will have a meaningful long-term effects of the conduct of government.
But the bad news here is not that we may not have reached catharsis yet in terms of governance but rather that we may reach such a state faster than expected if alternative leading indicators are right about our future. According to Bruce Pile, we could be heading right into a deep economic crisis; and could be heading there very soon.
The arguments presented below are quite convincing and are worth taking into account in any risk analysis. I will nevertheless let you be the judge of that. Thanks to Yves Martin for the pointer.
Here is the piece (link).
Images: Flickr (licence attribution)
About The Author – Luc Vallée
Currently President of The Independent Market Observer. Chief Economist and Vice-President at the Caisse de dépôt from 2001 to 2008. Chief Financial Officer and Vice-President, Corporate Strategy for Mediagrif Interactive Technologies from 1999 to 2001 – MDF.TO. Deputy Treasurer at Canadian National Railways, 1997-1999. Associate Professor of Applied Economics at l’École des Hautes Études Commerciales (HEC) in Montréal, 1989-96. Consultant for the World Bank, the Canadian government, the Quebec government and the City of Montreal. Deputy director of the Center for International Studies, 1993-1996. Adviser to the investment banking division of Société Générale in Canada, 1996. President of ASDEQ in 2005-06. Member of the National Statistics Council of Statistics Canada, 2008-now. Ph.D. (1989) in economics from the Massachusetts Institute of Technology.