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Outlook for the Economy: Data vs. Emotion

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For all the speculation about how the election of Donald Trump will affect the economy, there is precious little data thus far upon which to make those predictions, says Bob Hughes, senior research fellow at the American Institute for Economic Research. Although expectations for the future are undoubtedly shifting, for the short term, life goes on with very little impact, he says. After the Brexit vote in June, the financial markets reacted based on strong emotions, but ultimately evened out, he noted. After Trump’s election, the markets are up.

“It’s going to take a while for Trump to get his team together, and then there is the inauguration in January. It will take longer to get legislation enacted, and then to have an impact on the economy,” Hughes said.

When we analyze the economy, we work to cut through the emotion and look at what the data tell us, he said. And the data is showing some mild but steady improvement in the economy over the last two months, according to the new edition of Business Conditions Monthly, which is out this week. Our Leaders Index stands at 58, up from 54 in September, with 50 being neutral. This is the second month in a row that the index has been above 50, after seven months in the 38 to 50 range.

Of our 12 leading indicators, two changed from neutral to positive: housing permits, as well as debit balances in margin accounts. (The latter is an indication of investors’ appetite for risk.) One indicator fell from positive to neutral: the average workweek in manufacturing. “With two months in a row of improvement, it would suggest the risk of recession has diminished somewhat,” Hughes said.

This month’s Business Conditions Monthly includes a look at retail sales amid an upbeat outlook for the holiday spending season, as well as a look at structural changes in the economy.

Business Conditions Monthly is available free of charge. Click here to see the report: https://www.aier.org/bcmoverview2016november

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