(The following is from our December Leading Indicator Watch (LIW), released December 4th, 2014.  The LIW is a monthly report giving a summary of all or our main leading indicators, allowing clients to forecast early on where the business cycle in major countries is going, instead of having to react to current data.)

“This month has seen a non-trivial fall in the short-leading US indicator.  The same inputs have been keeping the indicator in its subdued state all year: the stock/bond ratio, slowing real money growth and building permit weakness.  This last month it is primarily a fall in the stock/bond ratio that has dragged the indicator down.

“Our story all year has been that US growth would modestly disappoint in 2014.  Expectations fell from 2.9% in February, to a low of 1.7% in July, and sit at 2.2% today.  Growth in the fourth quarter needs to come in around 2.5% for the 2.2% expectation to be met.  Current expectations may be about right for 2014, but our short-leading indicator suggests there will be a weak start to 2015.  Our longer-leading indicator, which has 12m lead, still gives a more upbeat picture, suggesting 2015 as a whole should deliver reasonable growth in the US.”

img1Source: Bloomberg and Variant Perception

(Post Script: Back in December, consensus was that 1Q15 US GDP would be 2.9%.  This was gradually revised down to 1-1.25% (see chart below).  Today, the first estimate of 1Q15 GDP came in at 0.2%.)

img2

Source: Macrobond and Variant Perception