New Forecast Sees Steady Upturn in the Economy

After a dramatic surge in the economy and the markets in the early going of the Trump administration, job creation has tapered off and the markets have grown jittery in the face of mounting tensions with North Korea and President Trump’s decision to drop the “mother of all bombs” on an ISIS stronghold in Afghanistan last week.

It’s far too early, of course, to predict with any certainty how President Trump’s budget, tax and trade policies will play out in the coming months and whether the economy is headed for good times or bad. However, the American Economic Institute for Economic Research (AIER), a conservative research and forecasting firm, is bullish on the economy after its “Business-Cycle Conditions Leaders” index rose to 83 in March, the highest level reached in two and a half years.

The firm gauges the business cycle with a raft of leading and coincidental economic indicators. Most notably, nine of the AIER’s dozen leading indicators are now expanding compared to eight positive indicators in the previous month.

Two of those indicators are getting special scrutiny: The average workweek in manufacturing, which picked up in March from a relatively flat line the previous month, and initial claims for unemployment insurance that have plateaued and now are headed downward.

“The current trends for these two Leaders are consistent with the strong labor market conditions that have been slowly developing over the past few years,” the report states.“At some point, these Leaders may move to a flat trend, but serious concern should only arise as these two Leaders change to unfavorable trends.”

At the same time, the drab performance of real new orders for consumer goods and sales of heavy trucks over the past four months “seems likely to break to the positive side” in the coming months, considering the strong labor market conditions.

The analysis notes that as energy prices rebound, investment in energy-related industries has bottomed and “looks to be turning higher.” Stronger economic data and anticipation of infrastructure spending in the future have added to business confidence and may support faster growth in business investment.

What’s more, the housing market continues to recover from the boom-and-bust cycle of the late 2000s.  Investment in new single-family and multifamily home construction plus existing home renovations have been a net contributor to real gross domestic product for most of the past three years, except for the second and third quarters of 2016.

“Overall, the recent performance of our Leaders is reassuring, pointing to continuing economic expansion in the months ahead, with a low risk of recession,” AIER says. “Positive signs for the current expansion are reinforced by favorable results” from other economic indicators.

Eric Pianin

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