LEI vs The Coronavirus

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Leading economic indicators has been an instrumental data line to track, especially with the last 7 economic cycles. It’s one of my 6 recession red flags that I have. However, the velocity of the virus and government protocols for lockdowns and social distancing has been faster than most of the economic data to catch up with.

From Doug Short:
https://www.advisorperspectives.com/dshort/updates/2020/03/19/conference-board-leading-economic-index-edged-up-in-february-will-be-short-lived

March LEI

I believe it’s essential for all people who track data to document all this information, which we need to create models for the future that account for global pandemics that could have this kind of velocity. We have to always assume that lockdown protocols are in play if the virus gets to a particular stage.

Some of the most recent data, such as jobless claims, only today have picked up the virus impact. Regional Manufacturing data, which has been in an upturn, is turning negative like China’s PMI data has.

From Doug Short:
https://www.advisorperspectives.com/dshort/updates/2020/03/19/weekly-unemployment-claims-up-70k-result-of-covid-19-annual-revisions

March 19th Claims

March Philly Fed

Housing starts, which is another recession red flag can’t be counted on as well as this data just showed almost 40% year over year growth yesterday. Purchase application data also showed 8 straight weeks of double-digit year over year growth as well.  The housing data is on fire this year, but this is also BC Before Coronavirus. The same with retail sales, recent 3 month average of jobs data, JOLTS, and LEI, are lagging the virus noticeably.

Housing Starts & Purchase Application Data Vs. Coronavirus 

https://loganmohtashami.com/2020/03/18/housing-starts-purchase-application-data-vs-coronavirus/

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Some people are trying to make a case that if Q1 doesn’t show negative growth and Q2 gets the brunt of the economic damage, then we recovery in Q3 & Q4 into the positive this shouldn’t be considered a recession.

I wouldn’t think of it in this light. I have written a lot recently that the U.S. has had 3 times in this cycle where GDP was negative and 4 other times where it was below 1%. One time we just had a 0.50% growth in back to back quarters in 2012. However, none of those events had the velocity of a global pandemic virus that requires the government to use shutdown protocols. It is very accurate, almost the majority of all economic data was positive up until the last few weeks, the velocity of this downturn is historical in nature. This is a big reason why I write about each data line now with the BC Before Coronavirus reference. Unlike other downturns, this has the potential to come back to growth mode quickly once social distancing protocols are taken off.

A lot of data will lag to the downside and upside as well once the world defeats this virus, and we remove lockdown protocols. The bond market yield had already reached my recessionary yields when it broke under 0.62%, but significant liquidation selling is making that a trivial thing to watch right now.  I am sticking to my thesis that a lot of negative headlines around the virus will go away but by September 1, 2020. This doesn’t mean lockdown protocols will last that long. However, WWIII is just starting for America right now. I am assuming 27,000 cases will be verified shortly, and then 6-8 weeks from that point, we should see a better curve on the virus at that point. We might get better news than that assumption on both fronts. Gear up America, war is here, we are going to destroy this virus one country, one family, one goal for all us! Let’s send this agent of the Devil back to the abyss where it belongs.

Logan Mohtashami is a financial writer and blogger covering the U.S. economy with a specialization in the housing market. Logan Mohtashami is a senior loan officer at AMC Lending Group, which has been providing mortgage services for California residents since 1987. Logan also tracks all economic data daily on his Facebook page https://www.facebook.com/Logan.Mohtashami and is a contributor for HousingWire.

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