“Perma-bears” 1 – BofA Economist 0
by Tyler Durden
ZeroHedge.com
01/22/2016
Last May, after the “harsh snowfall” of Q1 crushed US GDP (when it was really the bursting of China’s shadow banking bubble) leading to sellside analysts first, and then the Bureau of Economic Analysis to decide the time has come to double seasonally GDP data to avoid such embarrassments as a negative print in the middle of a recovery, Bank of America’s chief economist Ethan Harris rushed to declare victory.
Explicitly targeting the “perma-bears” this is what Harris said:
Perma-bears come out of hibernation: In what seems like an annual rite of spring, perma-bear economists have come out of hibernation, declaring a rising risk of recession. After all, they argue, GDP probably dropped in 1Q, and a variety of other key indicators point to recession risk, including credit and sales variables and the Treasury yield curve. We don’t buy it. We believe the 1Q GDP data greatly exaggerate the weakness in the economy and only a very selective reading of the data signals a significant recession risk.
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A favorite perma-bear approach is to troll the news for indicators that “have never been this weak outside of a recession.” Let’s look briefly at our three favorite nuggets from this data mining exercise
Wholesale sales plunged 4% YoY in March and that only happens in recessions. The problem here is that petroleum and petroleum products make up about 10% of the wholesale sector, so the entire drop in the nominal value of sales is due to the drop in oil prices.
The National Association of Credit Management shows a huge plunge in “credit rejection.” Actually this one component of a broader survey. The overall diffusion index is 53.9, consistent with moderate growth.
The yield curve has flattened and is headed toward inversion. Such an inversion has preceded seven of the last seven recessions. In reality, even at its flattest point this year the spread between 3-year and 10-year Treasuries was 95bp. That is not even below its historical average. Moreover, bond buying by central banks has turned this recession indicator upside down. A flattening can be a sign of more aggressive QE (domestically or globally) rather than a sign that the market expects weaker growth.
The Rest…HERE
