DeWolf Monthly Economic Report

posted on 05.14.14

It is rare for weather to play such a major role in the economy as it has this winter. The geographic extent and the severity of winter in the eastern half of the country has visibly left its mark on overall retail sales, especially vehicle sales. Housing starts are normally slow in the winter months, but they also felt the effects. Even industrial production slowed in January compared to December, although it quickly recovered. March data is suggesting that while there will not be a huge burst of growth to make up for the slow start to the year, the economy is back on track for steady gains.

The slow first quarter will change the growth curve pattern, making 2014 lower than expected. In some cases the math involved will move the yr/yr high from the first or second quarter to later in 2015. Adding to the forecasting confusion is the difficulty in finding reliable long-term leading indicators. The good news is that it appears that yield spread is back on track after a 3-year hiatus from 2008 through 2010. The turning points for the yield spread growth curve have been leading the economy by a year since the start of 2011, long enough to deem it reliable. The CEWI-M, however, is now off-track due to its reliance on mortgage interest. When the Federal Reserve eases its manipulation of interest rates the CEWI should again become a valuable tool. Interest rates themselves can be some of the best long-term indicators, leading by up to two years.

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