The purpose of the Turning Points newsletter is to look at the long-leading, leading, and coincidental economic indicators to determine if the economy is changing from expansion to contraction – to determine if the economy is at a “Turning Point.”

Today, let’s start with the manufacturing sector. The ISM index has been in the upper 50s/lower 60s for the last 12 months. The Markit manufacturing number was lower but still positive. Both these readings are positive – the ISM more so. Here are some numbers that confirm the strength of the sector:

The chart above shows the average weekly hours of production employees, which is near a multi-year high. This is one of the first things an employer will either cut (which lowers costs at the margins but keeps the labor force employed) or increase (which allows the employer to increase overall production). This is a very positive development. It’s occurring because orders are high:

New orders for non-defense capital goods is at an absolute 5-year high (left chart). The Y/Y pace of growth is high as well (right chart).

While not at 5-year highs, the absolute number of new orders for consumer goods is climbing (left chart). It is, however, at a 5-year high on a Y/Y basis (right chart).

Turning to the labor market, we see a very strong picture:

The top chart shows the 5-year number for the 4-week initial unemployment claims, which is near a 5-year low. The bottom chart places this number into historical perspective, showing that it’s currently near a multi-year low.

Leading Indicator Conclusion: There is nothing in these numbers pointing towards a recession anytime soon.

Let’s turn to the coincidental numbers. This week, the BEA released the second estimate of 2Q18 GDP. Rather than looking at those numbers, let’s look at the national income figures which are less often reported but which yield important information about the source of funds for spending.

Total GDI (left chart) is just shy of $18.6 trillion. On a Y/Y basis, it’s increasing slightly more than 2% and has been growing between 2% and 2.5% since early 2017.

Compensation of employees comprises the largest portion of GDI. The left chart shows that this has been steadily increasing over the last five years. The right chart puts the number into a Y/Y perspective; that growth rate is slightly more than 4.5%.

Operating surplus for private enterprises is basically the income earned by entrepreneurs. While this number moved lower from mid-2014 to late-2015, it’s been increasing since on an absolute basis (left chart). The Y/Y growth rate is slightly below 5% (right chart).

Finally, we have corporate profits. These declined between mid-2014 and late 2015 as a result of the oil market decline. But they have been rising steadily since (left chart). The pace of Y/Y growth (right chart) is near a 5-year high.

Next Friday, the BLS will release its latest employment report. Let’s take a look at the Atlanta Fed’s Labor Market Spider Chart to place the report into context:

The gold band is the latest information from the labor market; the dark green band is the height of the last expansion. With the exception of wages, the current labor market is stronger than the last time the economy was growing.

Coincidental indicators conclusion: There is no reason to think we’re at/near a recession.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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