Economic Indicators Roundup (Mar 26, 2012)

This is kind of like 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 the economic indicators, I will denote in each one’s 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.

(NOTE: 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 …)

 


Quick Summary

Indicator (Click for details – only works if full article is open) Current Rating (change)
ADS Business Conditions Index Positive   (upgrade)
Bloomberg Financial Conditions Index Neutral
Daily Consumer Leading Indicators Negative
Citigroup Economic Surprise Index Neutral
USA Today / IHS Global Insight Economic Outlook Index Neutral
Employment Trends Index Positive
Chicago Fed National Activity Index Positive   (upgrade)
Easynomics Real Estate Price Stability Index Positive

 



Economic Indicator: ADS Business Conditions Index   |   POSITIVE   (upgrade)
Easy Intro to ADS Business Conditions Index   |   Link to Source   |   Latest Date This Info Represents: Mar 17, 2012

Quick ‘n Easy

A combination of several key indicators of business conditions suggests, with low confidence, that current conditions are essentially average (+0.006), historically speaking.  The index suggests that, except for a brief dip in early November 2011, economic activity has 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 1, 2011, when conditions were essentially average (+0.025).

Economic Indicators - ADS Business Conditions Index Mar 17 2012

Source: PhiladelphiaFed.org

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: (+) 0.006 for Mar 17, but this only includes the weekly unemployment figures and maybe one other indicator.  This level is barely higher than the revised number for a week ago (+0.002).  It appears this index had been above average since the beginning of the fourth quarter except for a brief dip in mid-November, but it has now hovered right around zero (average) since mid-February.  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, hitting a temporary high in late December (around Dec 27) then dropping steadily toward the average (zero) line.

The index value corresponding to Jul 1, 2011, is the most recent one for which one month’s worth of readings leading up to it were very consistent with very small revisions (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 essentially average (+0.025).

Implications: Recent data has confirmed a strong second half of the 4th quarter of 2011, but newer data has begun to show a decline from just before the start of 2012.  It appears likely that the rate of growth has slowed in the 1st quarter of 2012.  It would be nice if it didn’t drop too far below the zero (average) line.

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.



Economic Indicator: Bloomberg Financial Conditions Index   |   NEUTRAL
Easy Intro to Bloomberg Financial Conditions Index   |   Link to Source   |   Latest Date This Info Represents: Mar 23, 2012

Quick ‘n Easy

The general trend has been a slow rise upward for the past several months, so we may be getting to an even better place with financial risk.  There has been a resolution (for now) to the financial crisis in Greece, and so investors are not perceiving an unusually high level of financial risk right now.  At this moment, it would seem that financial stress is not a drag on economic prospects.

Economic Indicators - Bloomberg US Financial Conditions Index Mar 23 2012

Source: Bloomberg.com

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:  +0.20   (versus a reading of minus +0.27 last week)

Implications: The index has now sit nicely in the “neutral” zone since January 20.  Although most don’t believe it is behind us permanently, the situation in Greece reached an important positive milestone recently.  The market believes that risk is substantially less now than it was late last year.  In fact, this index crossed above zero recently for the first time since Aug 1 of last year.  The point is that perceived risk in the financial system is not hindering the economy right now, but it definitely isn’t something people would just ignore either – hence the “neutral” rating.

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.

 



Economic Indicator: Daily Consumer Leading Indicators (Consumer Metrics Institute)  |   NEGATIVE
Easy Intro to Daily Consumer Leading Indicators   |   Link to Source   |   Latest Date This Info Represents: Mar 21, 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 21, was about 12% below a fairly normal level seen in the year 2005.

Economic Indicators - Consumer Metrics Institute Daily Absolute Demand Index Mar 21 2012

Courtesy: ConsumerIndexes.com

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.)

Economic Indicators - Consumer Metrics Institute Monthly Absolute Demand Index February 2012

Courtesy: ConsumerIndexes.com

Latest Reading: Absolute Demand Index daily reading is approximately 88 for March 21, which means preparations for consumer discretionary purchases is 12% lower than the fairly normal levels seen back in 2005.

Implications: The daily levels have been in a tight range, a little under 90, since the end of February.  My concern 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 over the next few months, 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 staring at an economic slowdown that could put a recession back on the table as an option later this year.

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.”

 



Economic Indicator: Citigroup Economic Surprise Index US   |   NEUTRAL
Easy Intro to Citigroup Economic Surprise Index   |   Link to Source   |   Latest Date This Info Represents: Mar 23, 2012

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 somewhat better than expectations.  This does not necessarily mean the reports are great – just somewhat better than expectations.  There is a downward trend, however, which means we could hit “negative” territory a few weeks or months from now.

Economic Indicators - Citigroup Economic Surprise Index - United States - Mar 19 2012

Source: Bloomberg.com

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: +27.40 on Mar 23, 2012 (versus +31.60 on Mar 19)

Implications: The index recently crossed down into “neutral” territory for the first time since Nov 10, 2011.  This just means that expectations have been raised as a result of good data, and now it is more likely that data will disappoint.  It doesn’t actually mean the data is getting worse.  Hopefully, the index won’t go way below zero as it often has in the past during this kind of cycle.

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.”

 

 



Economic 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: February 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 July 2012.  But at least it’s slow growth instead of shrinking.

Economic Indicators - USA Today IHS Global Insight Economic Outlook Index February 2012

Source: USAToday.com

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 March/April 2012, and each month’s forecast is slightly lower from there, eventually reaching a July 2012 forecast of 2.1%

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.”

 


 


Economic Indicator: Employment Trends Index   |   POSITIVE
Easy Intro to Employment Trends Index   |   Link  to Source   |   Latest Date This Info Represents: February 2012

Quick ‘n Easy

A combination of indicators related to the jobs market through February 2012 suggested that we should see very nice job growth for the first quarter of 2012 and beyond, even if the overall growth in the economy may not blow anyone away.  Comments from the experts on the index suggest a positive outlook for some time.

Economic Indicators - Employment Trends Index Feb 2012 - The Conference Board

Source: Conference-Board.org

Easy Description: Combines several indicators together to provide an outlook for employment growth.

Latest Reading: 107.47 for February 2012 (up 6.5% from one year ago) – January 2012 reading was revised to 106.33

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 acceleration in the ETI suggests that rapid job growth is likely to continue in the next several months, despite modest improvements in Demand and Production.  In the past year output per hour of work grew very slowly. If this trend continues, employment growth could remain robust even if GDP continues to grow at a modest 2 to 2.5 percent, as we expect.”

Those are pretty positive comments, suggesting that jobs growth is here to stay for a while.  Even though the ETI level is not up to where it was before the recession began, the expert feels the growth will continue for some time, leading me to believe we are headed back to that general vicinity in the coming months.

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.

 



Economic Indicator: Chicago Fed National Activity Index 3-Month Moving Average   |   POSITIVE   (upgrade)
Easy Intro: None yet   |   Link to Source   |   Latest Date This Info Represents: February 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 somewhat faster than the historical average in February 2012.  This level essentially rules out a recession as of that date.

Economic Indicators - Chicago Fed CFNAI-MA3 thru February 2012

Source: ChicagoFed.org

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 February 2012 was positive (+) 0.30, which was slightly better than the previous month’s revised reading of positive (+) 0.22.  The single month CFNAI reading for February 2012 was minus (-) 0.09, which is a big drop from the revised positive (+) 0.33 reading for the previous month.

Implications: In February specifically, economic activity was just barely worse than historical averages (-0.09 for the single month reading), and the more reliable way of looking at things shows an economy that was slightly above average (+0.30).  We can essentially rule out that a recession had begun in February 2012.  That’s all I want you to focus on because month-to-month variations can often mean little.  But if you want a deeper dive into the data, read on.

This is the second consecutive month with a substantial drop in the single-month reading.  December 2011 was +0.66, January 2012 was +0.33, and February 2012 was -0.09.  The biggest culprit for the big single-month drop this time around was “Production and Income” related indicators.  They were way above average last month but only average this month.  The second biggest reason was a significant drop in the “Employment” indicators from way above average to just somewhat above average.

Only two of the four broad components were significant contributors to February’s single-month slightly negative reading.  The “Personal Consumption and Housing” category was well below average (-0.27), but the “Employment, Unemployment and Hours” category was above average (+0.18).  That’s not too bad a situation, as it may bode well for the future.  People are getting jobs and working longer but not spending it just yet.  Maybe that will result in savings for when they can afford to spend more in the future.  In summary, of the four broad categories of indicators in January, there were 1 positive, 2 nearly unchanged and 1 negative.  Somewhat concerning news – only 35 of the 85 total indicators were better in February than they were in January.

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.”



Economic Indicator: Easynomics Real Estate Price Stability Index (EREPSI)   |   POSITIVE
Easy Intro to Easynomics Real Estate Price Stability Index   |   Latest Date This Info Represents: February 2012 (contains estimated portion)

Quick ‘n Easy

An index designed to look at the stability of home prices indicates that, thru February 2012, there is room for another 3.9 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 barely above the stable point but not move much beyond that.  We will probably see inventory of homes for sale flatten out instead, leaving the EREPSI right around the zero mark.

Economic Indicators - Easynomics Real Estate Price Stability Index Feb 2012 - Jan3Feb3Easy 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 February 2012, the EREPSI is at minus (-) 3.88 percent, which means there is room for another 3.88 percent drop in home prices before reaching a stable point.  Both the January and February readings are 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.

Implications: We’ve seen strong improvement in the index since July, and it has now reached a point that will be difficult to move beyond.  February is the first month since the run up from July where the index has turned back down, albeit very little.  My somewhat arbitrary decision is to call this index “positive” if it’s within 7.5 percent of a the stable point, which of course it is right now.  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.”


Easy Take

We have two upgrades from “neutral” to “positive” this week!  The Chicago Fed National Activity Index, a very comprehensive set of indicators, now suggests growth well above average levels.  The other upgrade isn’t as convincing.  The early data from the ADS Business Conditions Index point to barely above-average conditions, but that data can easily change as more data becomes available in the coming weeks/months.

Our other two “positive” economic indicators come with their own caveats.  The Employment Trends Index may be designed to be a leading economic indicator for employment, but employment itself is generally a lagging economic indicator.  That is, whatever happens to the economy usually happens to employment several months later.  It’s not as reassuring to see a positive employment indicator, at least when we’re wondering about our future.  The Easynomics Real Estate Price Stability Index is “positive” only because it signals that there is no bubble (negative or positive) in the housing market.  In other words, the market accurately reflects supply and demand.  That is good in the sense that any good news in housing can be cheered as opposed to attributing it to irrational purchases.  But it doesn’t mean the housing market is anywhere near a good place.

We currently have 4 positive, 3 neutral and 1 negative economic indicators.  Using a scale of positive=3, neutral=2 and negative=1, this yields an average rating of 2.375 out of 3 (versus 2.125 last week), which falls in the upper third of the possible range.  In other words, my set of economic indicators combine into a “positive” rating.  The consensus view of the above indicators is that economic conditions are consistent with positive growth at or above the historical average rate.

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.

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