Economic Indicator Roundup
For a “Quick ‘n Easy” read, just review the labeled white boxes, then skip to my “Easy Take” summary at the end. You can review any charts/graphs afterward. I want to make sure no one is intimidated by the length of my posts, even though I’m trying to making them easy …
This is a dashboard of economic indicators that I like to follow. For each, I will try to give you a brief description, the latest reading and what I understand to be its implications. For simplicity, I will assign each a rating of positive, neutral or negative. For each indicator, I will denote in its section how I decide which rating to give it. At the end, I assign an overall rating, but this is just to guide me in my takeaway of where things stand. It’s not scientifically rigorous or anything.
- Positive – indicative of a healthy, growing economy.
- Neutral – indicative of a slow or no growth economy but not a contracting (recession) economy.
- Negative – indicative of a shrinking economy or recession.
|Indicator (Click for details – only works if full article is open)||Current Rating (change)|
|ADS Business Conditions Index||Positive|
|Bloomberg Financial Conditions Index||Neutral
|Daily Consumer Leading Indicators||Negative (downgrade)|
|Citigroup Economic Surprise Index||Positive|
|USA Today / IHS Global Insight Economic Outlook Index||Neutral|
|Employment Trends Index||Neutral|
|Chicago Fed National Activity Index||Neutral|
|Easynomics Real Estate Price Stability Index||Positive|
Quick ‘n Easy
A combination of several key indicators of business conditions suggests, with low confidence, that current conditions are above average, historically speaking. It suggests that, except for a brief dip in early November 2011, the levels have been mostly above average since early October 2011. The most recent date for which all the readings leading up to it were highly confident is around Jul 7, 2011, when conditions were slightly above average (+0.207).
Easy Description: Combines several indicators together to describe current business conditions. A value above zero means that conditions are better than average, but below zero means worse than average.
Latest Reading: +0.106 for Feb 25, but this only includes the weekly unemployment figures and maybe one other indicator. This level is barely worse than the revised number for a week ago (+0.114). Conditions look like they hit a low point just barely below zero in the middle of the 4th quarter (around Nov 12) but improved considerably before flattening out slightly above the zero (average) line. It now appears this index has been above average since the beginning of the fourth quarter except for a brief dip in mid-November.
The index value corresponding to July 7, 2011, is the most recent one for which all the readings leading up to it were highly confident (see “Additional Info” below about varying degrees of confidence on the chart). According to the ADS Business Conditions Index, we can confidently say that on that date, business conditions were slightly above average (+0.207). The date with confident date used to be much later (recently it was Sep 11, 2011) but has moved back again due to revisions in the data.
Implications: Recent data has strengthened this index, indicating that general business conditions are looking healthy right now. The fourth quarter of 2011 started with slightly above average business conditions but dipped briefly below average (zero) – but not much below average. The index hit a low point around Nov 12. Since then, the index has mostly been above the historical average.
Additional Info: This index provides confident readings about the past when all of the indicators have been collected (everything to the left of the left-most vertical line). The readings in between the two vertical lines are somewhat less confident because they include some, but not all, of the indicators. And the latest reading always falls to the right of the right-most vertical line and includes only a couple of indicators.
Easynomics Rating Methodology: For this index, I will use the very latest reading and rate anything between zero and minus 1.00 as “neutral” – anything above or below that will be rated “positive” or “negative” respectively.
Indicator: Bloomberg Financial Conditions Index | NEUTRAL
Easy Intro to Bloomberg Financial Conditions Index | Link to Source | Latest Date This Info Represents: Mar 2, 2012
Quick ‘n Easy
Levels of stress in the financial markets were key to the most recent crisis in 2008. After this index hit a low point (which would be high stress) on October 3, 2011, it has seen some ups and downs before generally improving since late November 2011. It has now risen high enough to be well into what I call a “neutral” level. At this moment, it would seem that financial stress is not a drag on economic prospects.
Easy Description: Monitors the level of stress in the U.S. financial markets. Zero is normal, above zero is good and below zero is bad.
Latest Reading: minus (-) 0.08 (versus a reading of minus (-) 0.08 last week)
Implications: The index has now sit nicely in the “neutral” zone since January 20. For a while, it was looking like the patterns in this index resembled what happened leading up the crisis in 2008, but the levels of stress never reached anywhere near those disastrous ones. Instead, we have seen continued talks in Europe about making sure that Greece defaults on its loans in an orderly way, eliminating some concerns that there would be a financial crisis that could spread across the world. Whether the “markets” have it wrong is a question some would debate, but there is no question that the perceived level of risk in the financial markets has improved considerably and steadily since late November 2011.
Easynomics Rating Methodology: For this index, I will rate anything between 0.50 and minus (-) 0.50 as “neutral” – anything above or below that will be rated “positive” or “negative” respectively.
Indicator: Daily Consumer Leading Indicators (Consumer Metrics Institute) | NEGATIVE (downgrade)
Easy Intro to Daily Consumer Leading Indicators | Link to Source | Latest Date This Info Represents: Mar 2, 2012
Quick ‘n Easy
Consumer spending makes up about 70% of our economy, so an indication of what this spending looks like down the road is key in predicting growth rates. The level of interest from consumers in making discretionary (non-essential) purchases in the near term, as captured by the Consumer Metrics Institute on March 2, was about 11% below a fairly normal level seen in the year 2005.
Easy Description: Very unique indicator that captures the level of consumer interest in purchasing discretionary (non-essential) items. It measures activities that occur well in advance of the purchase, so that makes it a true leading indicator. The indicator that I choose to focus on is called the “Absolute Demand Index.” It tracks where demand is compared to levels in 2005, a fairly normal level. So, if the Absolute Demand Index level is 90, it means the level of consumer interest in purchasing discretionary items is 90% of what it was in 2005. The index is expressed in a daily form (see chart to right) and a monthly form (see chart below.)
Latest Reading: Absolute Demand Index daily reading is approximately 89 for March 2, which means preparations for consumer discretionary purchases is 11% lower than the fairly normal levels seen back in 2005.
Implications: The last time the daily index dropped below the 90 level, it went back up again and down to average somewhere in the neutral zone. The problem is that the daily index depends on where the index was exactly a year before. Unfortunately, from January to March 2011, the daily index averages were dropping lower and lower (see the monthly chart on the left for proof of this). This means that we’re likely to see the daily index drop considerably over the next few weeks, unless something remarkable happens to lift the daily year-over-year index readings seen on the Consumer Metrics Site (not shown on this page). Hopefully, this will not be a long-lasting effect. If we see leading indicators for consumers turn down, we will be starting at an economic slowdown that could put a recession back on the table as an option in the next few months.
The recent positives in employment reports definitely helps things. The consumer needs to have money to spend on discretionary items. That money generally comes from jobs. And it looks like we’re seeing more jobs and hiring for now. But watch for those statistics on disposable income levels to really get a feel for whether consumers have money to spend. After a nice jump in December 2011, the reading for January 2012 came in a bit lower, so that may be contributing to the slow decline we’ve seen in consumer discretionary purchase preparations. Let’s see how things look for the next several months.
Easynomics Rating Methodology: For this index, if the daily Absolute Demand Index is 98 or higher, I will rate that “positive” – between 90 and 98 will be “neutral” – below 90 will be “negative.”
Quick ‘n Easy
An index that measures whether reports on economic data are generally coming in above, at or below expectations suggests that we are getting reports that are better than expectations. This does not necessarily mean the reports are great – just better than expectations.
Easy Description: Daily measure of whether, on balance, U.S. economic reports have been better than (positive values), worse than (negative values) or same as (zero) what economists have expected. For the importance of this, see my post about expectations versus actual results.
Latest Reading: +45.10 on Mar 2, 2012 (versus +58.00 on Feb 24)
Implications: The index hadn’t really dipped below the mid-60′s level for long since it reached that level in early December, so the fact that it closed below 60 a couple of weeks ago and now dipped down to the 45 level is troublesome.
Remember that economic reports aren’t necessarily leading indicators, so where we are headed could be somewhere better (or worse).
Easynomics Rating Methodology: I will give this indicator a rating as follows: 100 to 34 is “positive”; between 34 and -34 is “neutral”; -100 to -34 is “negative.”
Indicator: USA Today / IHS Global Insight Economic Outlook Index | NEUTRAL
Easy Intro to USA Today / IHS Global Insight Economic Outlook Index | Link to Source | Latest Date This Info Represents: January 2012
Quick ‘n Easy
A combination of indicators that predict the growth rate of the economy for the next several months suggests that the U.S. economy will grow at a slower-than-average pace through June 2012. But at least it’s slow growth instead of a shrinkage.
Easy Description: Forecast of the 6-month annualized Real GDP growth rate for the next several months. Based on an index of 11 leading indicators, each of which generally predicts future changes in economic growth.
Latest Reading: Forecasting a peak of 2.5% for January 2012, and each month’s forecast is slightly lower from there, eventually reaching a June 2012 forecast of 1.6%
Implications: These numbers continue to suggest that growth should be slow compared to historical averages, which removes some of the cushion that would protect us against a shock to the system (like what’s happening in Europe.) These growth rates will make it tough for the economy to produce too many jobs above and beyond the needs of the growing workforce population.
Note that some of this forecast depends upon interest rate spreads (the difference in interest rates on short-term bonds versus long-term bonds, for example). Those kinds of spreads have been artificially affected by the Federal Reserve’s interventions that are intended to keep interest rates low. Their usefulness as tools for forecasting economic growth are lower as a result. What I’m saying is that this forecast may be slightly too optimistic.
Easynomics Rating Methodology: For this index, if the average growth rate of the forecast months is 3 percent or higher, I will rate that “positive” – between 0 and 3 percent is “neutral” – below zero will be “negative.”
Quick ‘n Easy
A combination of indicators related to the jobs market through January 2012 suggested that we should see very nice job growth for the first quarter of 2012, but this will likely be temporary given the expected slowdown in the economy. The index has been growing, but a generally weak outlook for the economy is what keeps the experts on this index from feeling comfortable expressing any major optimism.
Easy Description: Combines several indicators together to provide an outlook for employment growth.
Latest Reading: 105.81 for January 2012 (up 5.9% from one year ago) – December 2011 reading was revised up to 105.04 (previously 104.32)
Implications: The reading is consistent with improving job growth for the next several months but with one caveat. According to an expert on the index, “The Employment Trends Index has been improving rapidly for four straight months, suggesting somewhat more robust job growth is likely to continue in this quarter. Beyond that we still remain cautious. We expect sluggish growth in economic activity in the first half of 2012 and therefore we do not foresee the strengthening of the labor market to be sustained in the second quarter of 2012.” Translation: The jobs market lags the economy usually, so the recent improvement in the economy will show up over the next several months – but once things slow down, several months later we will see a deterioration in the jobs market, too. I will keep the rating at “neutral” because the expert is not expressing optimism for a sustained rise, and the index has not returned anywhere near the previous levels before the recession.
Easynomics Rating Methodology: For this index, I will base my rating largely upon what the index expert says. If the indication is for job growth of any kind, I will rate it either “positive” or “neutral” depending upon the level of growth. If jobs are expected to decline, I will issue a “negative” rating.
Indicator: Chicago Fed National Activity Index 3-Month Moving Average | NEUTRAL
Easy Intro: None yet | Link to Source | Latest Date This Info Represents: January 2012
Quick ‘n Easy
An index combining 85 indicators into one number suggests that, over a three-month period, the economy was growing at a rate that was slightly faster than the historical average in January 2012. This level essentially rules out a recession as of that date.
Easy Description: The Federal Reserve Bank of Chicago combines 85 different indicators into one number to give a sense of whether the overall U.S. economy is growing faster than its historical trend (numbers above zero) or slower (numbers below zero). It’s not as simple when you’re trying to determine whether the economy is actually growing (expansion) or shrinking (recession). If you average the last three months’ index values, you get the CFNAI-MA3 (“moving average 3 months”). According to the Chicago Fed:
When the CFNAI-MA3 value moves below -0.70 following a period of economic expansion, there is an increasing likelihood that a recession has begun. Conversely, when the CFNAI-MA3 value moves above -0.70 following a period of economic contraction, there is an increasing likelihood that a recession has ended.
Latest Reading: The more reliable moving average of the last three months (CFNAI-MA3) for January 2012 was positive (+) 0.14, which was slightly better than the previous month’s revised reading of positive (+) 0.06. The single month CFNAI reading for January 2012 was positive (+) 0.22, which is a big drop from the revised positive (+) 0.54 reading for the previous month.
Implications: In January specifically, economic activity was better than historical averages (+0.22 for the single month reading), and the more reliable way of looking at things shows an economy that was slightly above average (+0.14). We can essentially rule out that a recession had begun in January 2012. The “production-related indicators” are responsible for most of the drop in January’s single-month reading versus the previous month. The other three areas each improved ever so slightly from the previous month, but that still left the “Personal Consumption & Housing” category well below average (-0.27). In summary, of the four broad categories of indicators in January, there were 3 positive and 1 negative. Somewhat good news – 48 of the 85 total indicators were better in January than they were in December.
Keep in mind that this index reports significantly later than other ones, likely because it takes a while for all 85 of its required indicators to be updated! Still, I like its comprehensive look at the economy and its fairly reliable prediction of upcoming recessions.
Easynomics Rating Methodology: I will give this indicator a rating based on the CFNAI-MA3 as follows: +0.20 or higher is “positive”; between +0.20 and -0.70 is “neutral”; -0.70 or worse is “negative.”
Indicator: Easynomics Real Estate Price Stability Index (EREPSI) | POSITIVE
Easy Intro to Easynomics Real Estate Price Stability Index | Latest Date This Info Represents: January 2012 (contains estimated portion)
Quick ‘n Easy
An index designed to look at the stability of home prices indicates that, thru January 2012, there is room for another 1.9 percent drop in home prices before reaching a stable point. If trends in months of supply and price/rent ratio continue, it is likely that prices will be above the stable point, but chances are that won’t happen.
Easy Description: This index is an average of three indicators that help ascertain whether home prices are above or below historically normal levels: 1) new homes inventory months of supply, 2) existing homes inventory months of supply and 3) price-to-rent ratio. For more info on what these mean, click on the “Easy Intro” above.
Latest Reading: Thru January 2012, the EREPSI is at minus (-) 1.94 percent, which means there is room for another 1.94 percent drop in home prices before reaching a stable point. This is based on actual values for the “months of supply” components but an estimated value for the Case-Shiller HPI that assumes its trend will continue. The February estimated reading relies on estimates for all components right now.
Implications: We’ve seen strong improvement in the index since July. My somewhat arbitrary decision is to call this index “positive” if it’s within 7.5 percent of a the stable point. Prospects for some stability in home prices look, dare I say, extremely good. Based on the parameters that this index tracks, there is hope that real estate prices may not move down much farther from here. It was reassuring to see Calculated Risk write that the housing bottom (in prices) is here , but it’s not surprising given that most of this index is based on things I learned at that blog.
Easynomics Rating Methodology: In the housing market, if things get too far “out of whack” with respect to price-to-rent ratio and inventory, it doesn’t matter which direction … it’s a negative. We don’t want a bubble or an overly pessimistic crash. Therefore, I will give this indicator a rating as follows, based on the most recent month with actual “months of supply” data to use in calculations: Within 7.5 percent of zero in either direction is “positive”; within 15 percent of zero in either direction (but not closer than 7.5 percent) is “neutral”; farther than 15 percent from zero in either direction is “negative.”
This week, the daily consumer leading indicators turned to “negative” in the midst of a generally disappointing week of economic data. We currently have 3 positive, 4 neutral and 1 negative components. Using a scale of positive=3, neutral=2 and negative=1, this yields an average rating of 2.25 out of 3 (versus 2.375 last week), which falls in the middle third of the possible range. In other words, my set of indicators combine into a “neutral” rating. The consensus view of the above indicators is that the economy looks like it is growing but at a slower rate than the historical average.
NOTE: You may be reading an outdated analysis. Please visit my latest economic indicators roundup.
Disclaimer: My dashboard isn’t really a group of similar indicators, so we can’t say that it represents any one particular thing. For example, it’s not geared strictly toward predicting the future of the economy like a leading indicators dashboard. It’s not like a coincident indicator dashboard that focuses on how things are right this second. It’s just a bunch of things I like to follow, interpreted in a way to be consistent with either economic growth or shrinkage. I would just guess that if the indicators I most like to follow start trending one way or the other, there is a good chance the economy is going that way, too.