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NOTE: You may be reading an outdated analysis.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:

  • 4 – Guilty (Win)
  • 1 – Not Guilty (Loss)
  • Conviction Rate = 80 percent

Leading Indicators vs September 2012

Original charge made in March 2012: “The Leading Indicators hereby charge that September 2012 shall be a POSITIVE month, as indicated by a positive growth rate at or above the historical average of 3.3 percent.”

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

The U.S. Coincident Index for September 2012 grew at an annualized rate of 1.5 percent from the index value three months prior.  This is positive but below a historically average level of 3.3 percent.

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.

Exhibit B – The Conference Board Coincident Economic Indicator | NEUTRAL

During the three months leading up to September 2012, the Conference Board’s Coincident Economic Indicator rose at a 1.5 percent annualized rate.  This is consistent with an economy that is growing at a positive rate but slower than the historically average 3.3 percent rate.

Easy Description: Basically, this index from The Conference Board is a combination of several indicators that traditionally correlate well to the current state of the economy.  For simplicity, we won’t talk about all the indicators that it combines.

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.

 

Exhibit C – e-Forecasting.com Monthly GDP Estimate | NEUTRAL

The monthly GDP estimate from e-Forecasting.com reflects that in September 2012, there was an annualized growth rate of 0.75 percent over the three-month lead up time.  This was positive but below the historically average 3.3 percent rate.

Easynomics Rating Methodology: I like to examine the indicator’s growth rate over the past three months but expressed as an annualized rate.  This is different from what e-Forecast.com itself does, which is to take a 3-month moving average of the 3-month growth rate.  I prefer to look at just a specific month’s 3-month growth 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.

 

Exhibit D – Chicago Fed National Activity Index 3-Month Moving Average | NEUTRAL

The moving average of the last three months (CFNAI-MA3) for September 2012, after one revision, was negative (-) 0.36.  This is consistent with an economy that is growing but at a slower rate than the historically average 3.3 percent rate.

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 (numbers above zero) or shrinking (numbers below zero).  If you average the last three months’ index values, you get the CFNAI-MA3 (“moving average 3 months”).

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.”  NOTE: I will use wait one extra month so that there is one round of revision to the data (i.e., wait for the report on June so that May’s data is revised) before using this for a verdict.

 

Exhibit E – ADS Business Conditions Index | NEUTRAL

The average daily value of the ADS Business Conditions index for September 2012 was minus (-) 0.582.  This is consistent with an economy that is growing but at a rate that is slower than the historically average 3.3 percent rate.  (NOTE: Even after updating this methodology to include the previous two months, it was still “neutral”)

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.

Easynomics Rating Methodology: I like to examine the indicator’s average daily value for the month in question.  When that is between 0 and minus (-) 1.00, I will issue a “neutral” rating – above or below that range will be “positive” or “negative” respectively.

Verdict

NOT GUILTY – Easynomics has determined that September 2012 was a NEUTRAL month (based on averaging the ratings above using simple scale of 1 thru 3).  The month is not guilty of charges six months earlier by leading indicators.

The new official Easynomics Court conviction record for categorizing the growth level six months into the future is:

  • 4 – Guilty (Win)
  • 2 – Not Guilty (Loss)
  • Conviction Rate = 67 percent
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