Green shoots?

I'm not optimistic for the mid-term (3-5 years), because the wheels are coming off the Eurozone and that will see massive sovereign debt defaults.  The banking system is still very creaky, with far too much leverage, and that will push the world into recession.  Well, that's my opinion, anyway.

But a second opinion is more optimistic.  The second opinion does some very interesting tracking of economic indices, and has a bunch of past successful predictions, so there's some weight you can give it.  Calculated Risk follows things like trucking load factors as indicators of short term economic activity, and the indices are pointing up:

In the interview, I mentioned the "doomer" mentality. Many people now think of the '90s as a great decade for the economy - and it was. But there were doomsday predictions every year. As an example, in 1994 Larry Kudlow was arguing the Clinton tax increases would lead to a severe recession or even Depression. Wrong. By the end of the '90s, there were many people concerned about the stock bubble and I shared that concern, but there were doomers every year (mostly wrong).

In the Business Insider interview, I said: "I’m not a roaring bull, but looking forward, this is the best shape we’ve been in since ’97". Obviously the economy is still sluggish, and the unemployment rate is very high at 7.9%, but I was looking forward. I mentioned the downside risks from Europe and US policymakers (the fiscal slope), but I think the next few years could see a pickup in growth.

In the article I highlighted two of the reasons I expect a pickup in growth that I've mentioned before on the blog; a further increase in residential investment, and the end of the drag from state and local government cutbacks.

I'm not entirely convinced for the medium term - while I don't think that the "Fiscal Cliff" is as bad as news reports say (and I'm fairly certain that we'll go over it - all Obama has to do is run out the clock and he gets tax increases and Defense cuts, and that's what he wants), we're already seeing the impact of Obamacare.  Now that may not hit the economy as a whole very hard, but it will absolutely increase inequality of income distribution as businesses cut back employees' hours to 30 a week.  Government spending will almost certainly be higher than expected because of the "help" that will be needed, and so we'll find that a huge tax increase and massive Defense cuts didn't really do much to reduce the deficit.  That will hurt business confidence, which will keep things mired in low gear until the collapse of the Euro in Greece, Spain, and Portugal causes everything to crumble.

I guess that this is why they call Economics the "dismal science".

Hat tip: Chris Lynch.

UPDATE 26 November 2012 10:45: Zero Hedge disagrees on the short term outlook.