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Much has been said about the bottoming of the economy and the glimmers of hope for the recession’s end.  But these terms are likely to have been misconstrued by the layman because, they refelct the academic economists’ focus on the first derivative, or rate of change, of time series data.  It would be hard to fault the average reader/listener of the broadside press to misapprehend the recent positive ebullience as referring to economic growth and improvement in unemployment.  Examples of the recent uptick in positive outlooks are too numerous for me too mention and many of the pundits are truly forgetable. 

Undoubtedly there is improvement in the sense that things are getting bad at a slower rate (not getting less bad).   But academics and economists (and especially academic economists) tend to look at time series in order to take a view on  economic trends.  That is they look at GDP figures, durable goods orders, unemployment etc.  But more importantly, they look to the first deriviative of these data series: the rate of change.  When they see economic indicators that have been declining at high negative rates begin to continue declining at smaller negative rates, they see reason for optimism.   

They are in a way justified in their optimism, but they run the risk of generating expectations among the average working person.  Naturally, this is not a completely bad thing, as economics has much to do with expectations and actions based on those expectations.  So creating a positive expectations may have a collateral beneficial effect.

However, I recently come across some potential informations that may be more concretely positive. As a credit analyst, I always look to the downside, so to get me to be positive about anything is truly difficult indeed.  But I discovered some interesting data I’d like to share. 

My firm has exposure to the machine building and forging industries.  These are highly cyclical and I track them to keep an eye on trends. Looking at the February durable goods orders, I saw something encouraging: a genuine uptick in new orders. The same can be said about Industrial Machinery.  I have some clear graphs that show this, but I cant seem to figure out how to paste them into my blog.

The important message is that these indicators, and a couple others give me reason to be optimistic.  Now, these trends never describe a nice curve, the jump up a bit, then come down by more, so its impossible to conclude that one uptick is a sign of recovery.  However, these upticks are the first signs of resistance.

But that’s just one credit analyst’s opinion.


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