Residential Investment – Easy Trends (Q3 2014 – Advance Estimate)

Residential investment is one of the best leading indicators for the general economy, meaning that what happens to residential investment typically ends up happening to the general economy a few months later.  I’m continuing a feature called “Easy Trends” – a place where I’ll analyze the recent trend for residential investment and discuss whether it is currently going up, down or neither.  You can read the basics of my methodology on the FAQ page.

NOTE: You may be reading an outdated analysis.  Please visit my latest residential investment trends analysis for more info.

Quick ‘n Easy

Residential investment refers to money that people spend on buying homes (either to live in or to rent out), home improvements and money people make on the sale of homes.  There is also some inclusion of equipment that come with many homes.  We care about how much private residential investment is taking place because it is a great leading indicator for what will happen to the general economy several months down the line.

The Bureau of Economic Analysis (BEA), the same group that publishes the GDP for every quarter, defines “residential fixed investment” as the following:

Consists of purchases of private residential structures and residential equipment that is owned by landlords and rented to tenants.  Investment in residential structures consists of new construction of permanent-site single-family and multi-family units, improvements (additions, alterations, and major structural replacements) to housing units, expenditures on manufactured homes, brokers’commissions on the sale of residential property, and net purchases of used structures from government agencies. Residential structures also include some types of equipment that are built into residential structures, such as heating and air-conditioning equipment.

In other words, residential investment refers to money that people spend on buying homes (either to live in or to rent out), home improvements and money people make on the sale of homes.  There is also some inclusion of equipment that come with many homes.

Why do we care about residential investment?  It just so happens to be a fantastic leading indicator, which means that whatever happens to this indicator generally happens to the general economy several months down the road.  One more thing – we care most about private residential fixed investment, not so much what the government spends.  That’s what shows us the real trend in the economy.

Here’s a historical chart of private residential fixed investment over the last five years provided by the Federal Reserve Bank of St. Louis:

Residential Investment - Real Private Residential Fixed Investment - Q3 2014 Advance Estimate - FRED

Source: StLouisFed.org

Residential Investment Trends and Projections

Below, I will discuss whether residential investment is currently in a trend, when the last confirmed trend was and what that says about projecting the next data point to be released.  I usually start my analysis from three years ago. continue reading…

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Initial Weekly Unemployment Claims (4-Week Moving Average) thru Week Ending October 25, 2014 – Easy Trends

In this article, I’ll do an “Easy Trends” analysis of the initial weekly unemployment claims data.  “Easy Trends” is a place where I’ll analyze the recent trend for an indicator and discuss whether it is currently going up, down or neither.  You can read the basics of my methodology on the FAQ page.

NOTE: You may be reading an outdated analysis.  Please visit my latest unemployment claims trend analysis for more info.

Quick ‘n Easy

By tracking the number of people who are filing for unemployment benefits for the first time each week, we get a quick insight into the latest status of the economy’s health.  Fewer claims equals more jobs, which equals more income, which usually equals more consumer spending (70% of the economy!) that supports company profits, which in turn can lead to more hiring.

Quick Version of Easy Trends Analysis

For the Initial Weekly Unemployment Claims series, I will be doing only a brief update as long as the level of claims is nice and low (below 350,000) and there isn’t a confirmed upward trend (which is undesirable of course). I will only call out a few specific statistics that I like to track. I’ll be tracking the trends, but it takes a lot of time to do the post, so I won’t do a post with the full analysis unless there is any cause for concern. Bottom Line: If you’re seeing my “quick version” of this analysis – don’t be worried about weekly jobless claims!

4-week moving average of weekly initial unemployment claims: 281,000   (good - we want this number to be below 350,000)

4-week moving average of weekly initial unemployment claims as a percent of the total size of the nation’s workforce: 0.18 percent   (good)

Current Trend: Confirmed downward trend of about 4,000 fewer claims per month, but latest reading too high to include in that trend   (good – right direction)

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GDP (Real Gross Domestic Product) – Easy Trends (Advance Estimate Q3 2014)

GDP (or Real Gross Domestic Product) is the accepted measure of overall economic activity, so we should care which way it’s trending.  I’m continuing a feature called “Easy Trends” – a place where I’ll analyze the recent trend for real GDP and discuss whether it is currently going up, down or neither.  You can read the basics of my methodology on the FAQ page.

NOTE: You may be reading an outdated analysis.  Please visit my latest GDP trends analysis for more info.

Quick ‘n Easy

Real GDP is simply the broadest and most widely accepted measure of economic activity.  Even though there are specific details of it that many dispute, you can typically be assured that if this number is increasing consistently, things are going well in the economy.

You can read my Easy Intro to GDP for more information on what the Gross Domestic Product represents.  Suffice it to say, it’s a broad measure of economic activity.  If this number is growing, it is generally a good sign.  We probably want to see levels up in the 3 to 3.5 percent annual growth range for signs of an economy that’s growing at a healthy pace.  When the unemployment rate is too high, however, you need to have even more growth than that to put a dent in the unemployment figure.

Here’s a historical chart of real GDP annualized growth rate for each quarter from Doug Short, including lines that show the historical average growth rate and the “best fit” line:

Real GDP Q3 2014 Advance Estimate - Doug Short

Courtesy: AdvisorPerspectives.com/Dshort/

GDP Trends and Projections

Below, I will discuss whether real GDP (real gross domestic product) is currently in a trend, when the last confirmed trend was and what that says about projecting the next data point to be released.  I typically start my analysis from three years ago. continue reading…

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Easynomics at the Movies (October 30, 2014)

NOTE: I’ve updated my methodology slightly from when I began this feature. I now use a weighted average, giving more weight to the IMDB rating. I also lowered the minimum allowable rating for either rating individually to qualify for the recommended list – moved down to 6.75 from 7.0. I also tweaked the criteria for falling into my various categories.

If you’re like me, you love going to the movies! But your time is valuable, and it’s important that you avoid disappointments. Fortunately, there are great tools out there to identify movies that are high quality. From time to time, I plan to post here some movies (currently playing in theaters) that “make the cut” according to my preferred criteria. I hope it can help a few of you out there when you’re making the decision about what to see on a date night or night out with friends.

My goal with this feature is to identify movies of substance that you will have a high probability of enjoying (and those so bad they’re worth making fun of)

Here’s how I arrive at my list of recommended movies:

  • The universe of movies I consider come from the following lists of movies currently in theaters:
    • Latest Box Office Top 10
    • Top 50 Ranked Movies from IMDB rated by “Moviemeter” (i.e., movies with “buzz”)
    • Top 12 Movies from IMDB rated by users (i.e., how much the average person liked the movie)
    • Top 10 Movies from Metacritic (i.e., how much critics liked the movie)
      • Top 5 that are in wide release
      • Top 5 that are in limited release – this way I don’t miss independent films
  • I take a weighted average of two ratings for each movie:
    • IMDB rating by users (i.e., how much the average person liked the movie) – double weighted
    • Metacritic rating (i.e., how much critics liked the movie) – single weighted
  • I recommend movies with an average rating of at least 7.5 and that have at least 6.75 for each of the two ratings I use
  • Critics Consensus statements comes from Rotten Tomatoes
  • NOTE: I only consider movies for which IMDB has at least 1,000 ratings and Metacritic has at least 10 reviews

 

Guaranteed Classic

Criteria: Avg. at least 8.75 – Both ratings at least 8.0

  • None for this edition

 

Must See

Criteria: Avg. at least 8.0 – Both ratings at least 7.5

  • Birdman - A thrilling leap forward for director Alejandro González Iñárritu, Birdman is an ambitious technical showcase powered by a layered story and outstanding performances from Michael Keaton and Edward Norton.
  • Whiplash -  Intense, inspiring, and well-acted, Whiplash is a brilliant sophomore effort from director Damien Chazelle and a riveting vehicle for stars J.K. Simmons and Miles Teller.
  • The Tale of the Princess Kaguya - Boasting narrative depth, frank honesty, and exquisite visual beauty, The Tale of the Princess Kaguya is a modern animated treasure with timeless appeal.
  • Gone Girl -  Dark, intelligent, and stylish to a fault, Gone Girl plays to director David Fincher’s sick strengths while bringing the best out of stars Ben Affleck and Rosamund Pike.
  • Guardians of the Galaxy - Guardians of the Galaxy is just as irreverent as fans of the frequently zany Marvel comic would expect — as well as funny, thrilling, full of heart, and packed with visual splendor.
  • Pride - Earnest without being didactic and uplifting without stooping to sentimentality, Pride is a joyous crowd-pleaser that genuinely works.
  • Force Majeure - Gleefully uncomfortable, Force Majeure is a relationship drama that’s hard to watch — and just as difficult to ignore.

 

 

High Quality

Criteria: Avg. at least 7.25 – Both ratings at least 6.75

  • Dawn of the Planet of the Apes
  • 20,000 Days On Earth
  • How to Train Your Dragon 2
  • The Drop

 

 

Only Watch with Witty Friends, Junk Food or Alcohol (cuz they’re bad…get it?)

Criteria: Avg. 5.5 or worse – Both ratings 6.0 or worse

  • Left Behind
  • Ouija
  • Annabelle

 

Here’s the latest version of the full list I analyze:

 

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Leading Indicators vs February 2015 – Easynomics Court

For an explanation on “Easynomics Court” and how it works, read this page on leading indicators vs six months into the future.

NOTE: In case you are accessing this post long after it was originally posted, you may also be interested in the most recent Easynomics Court case.

As of today, the official Easynomics Court conviction record for categorizing the growth level six months into the future is:

  • 17 – Guilty (Win)
  • 10 – Not Guilty (Loss)
  • Conviction Rate = 63 percent

NOTE: A random guess would yield the correct result only 33 percent of the time, so the leading indicators are definitely worth noting.


Leading Indicators from August 2014

Charges Filed: “The Leading Indicators hereby charge that February 2015 shall be a POSITIVE month, as indicated by a positive annualized growth rate at or faster than the historical average of 3.3 percent.”

Exhibit A – e-Forecasting Leading Economic Indicator (eLEI) | POSITIVE

In the six months leading up to August 2014, the e-Forecasting eLEI rose at an annualized rate of about 7.2 percent. This is consistent with growth that is at or above historically average rates over the next six months or so.

Easy Description: e-Forecasting.com has many useful tools for tracking the economy. Their Leading Economic Indicator (eLEI) is a proprietary model to predict the direction of the economy several months in advance. The concept is similar to The Conference Board’s LEI does. Many people believe this is a good leading indicator for the economy, and there is some very good work that validates that.

Easynomics Rating Methodology: I will calculate the change in the eLEI over the six months leading up to the month the “charges” are being filed. I will convert that change into an annualized rate. If the annualized rate is less than zero, I will issue a “negative” rating – 3.3 percent or higher will be “positive” – anything in between will be “neutral.” NOTE: I will use the first available data for the month where possible – i.e., I won’t use revised data – this way, I’m simulating what the leading indicators really believe at the time they are released.

continue reading…

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Easynomics Court

For an explanation on “Easynomics Court” and how it works, read this page on leading indicators vs six months into the future.

NOTE: You may be reading an outdated analysis.  Please see my latest Easynomics Court Verdict article for more info.

Heading into the verdict below, the official Easynomics Court conviction record for categorizing the growth level six months into the future is:

  • 16 – Guilty (Win)
  • 10 – Not Guilty (Loss)
  • Conviction Rate = 62 percent

Leading Indicators vs June 2014

Original charge made in December 2013: “The Leading Indicators hereby charge that June 2014 shall be a POSITIVE month, as indicated by a positive annualized growth rate at or above the historical average of 3.3 percent.”

Exhibit A – ECRI U.S. Coincident Index Growth Rate | POSITIVE

The U.S. Coincident Index for June 2014 rose at an annualized rate of 4.6 percent from the index value three months prior. This is consistent with an economy that is growing at or faster than the average historical rate of 3.3 percent per year.

Easy Description: The Economic Cycle Research Institute (ECRI) does something very similar to the Coincident Economic Index from The Conference Board, but they are not at all transparent about how they do their calculations. We can only wait to see what they publish as their index level and see where it leaves us.

Easynomics Rating Methodology: I like to examine the indicator’s growth rate over the past three months but expressed as an annualized rate. When that is between 0 and 3.3 percent, I will issue a “neutral” rating – above or below that range will be “positive” or “negative” respectively.

continue reading…

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