Economic Indicators Roundup (June 3, 2013)

Economic indicators are everywhere, so this is kind of like a dashboard that I like to follow.  For each indicator, 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 Neutral
Bloomberg Financial Conditions Index Positive
Daily Consumer Leading Indicators Negative
Citigroup Economic Surprise Index Neutral
Employment Trends Index Neutral
Chicago Fed National Activity Index Neutral
Easynomics Real Estate Price Stability Index Neutral
Easy Trends Dashboard +2.00 = Clearly in good direction with a few off-trend or unconfirmed readings

NOTE: You may be reading an outdated analysis.  Please visit my latest economic indicators roundup.

Economic Indicator: ADS Business Conditions Index   |   NEUTRAL
Easy Intro to ADS Business Conditions Index   |   Link to Source   |   Latest Date This Info Represents: May 25, 2013

Quick ‘n Easy

A combination of several key indicators of business conditions suggests, with high confidence, that at the end of March 2013 (most recent date for which there is data for all components of the index), conditions were slightly worse than average (-0.275).  As of about a week and a half ago, it suggested, with low confidence, that current conditions were below average (-0.344), historically speaking.  The index suggests that economic activity has remained below average since mid-March.

Economic Indicators - ADS Business Conditions Index May 25 2013


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 Readings:

May 25, 2013: Negative (-) 0.344 (includes weekly unemployment figures and maybe one other indicator)

One week prior: Negative (-) 0.366
One month prior: Negative (-) 0.428
One quarter prior: Positive (+) 0.112

The most recent date for which there is data for all components of the index is end of March 2013, when conditions were slightly worse than average (-0.275).

Implications: After the wild roller coaster ride from late November 2012 (peak) to mid-January 2013 (valley), which was most likely a side-effect of the personal income being affected artificially by companies pulling their dividends ahead to give people beneficial tax treatment, we’ve generally seen below average conditions.

Preliminary data from April onward suggest that conditions have remained below average.  But as more data begin to come in, the assessment may change.  That’s why it’s important not to put too much stock into data to the right of the first vertical line, and even less importance on data to the right of the second 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   |   POSITIVE
Easy Intro to Bloomberg Financial Conditions Index   |   Link to Source   |   Latest Date This Info Represents: June 3, 2013 (intra-day)

Quick ‘n Easy

An index of financial stress has worsened the last two weeks but remains well inside “positive” territory, as it had risen a fair amount to give a nice cushion.  It is signaling that financial stress is so low that it is helping the economy right now.

Economic Indicators - Bloomberg US Financial Conditions Index May 31 2013


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:  Positive (+) 0.97   (versus a reading of +1.24 two weeks ago)

Implications:  This measure of financial stress has taken a hit over the last two weeks.  Still, right now, this index is well above the threshold I’d consider for “positive” status.  Bottom line: Right now, this index is signaling that financial stress is so low that it is helping the economy.

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: June 1, 2013

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 June 1, was about 15% below a fairly normal level seen in the year 2005.

Economic Indicators - Consumer Metrics Institute Daily Absolute Demand Index June 1 2013


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 April 2013


Latest Reading: Absolute Demand Index daily reading is approximately 85 for June 1, which means preparations for consumer discretionary purchases are about 15% lower than the fairly normal levels seen back in 2005.

Implications: The monthly update (left) shows that the absolute level of demand has really been dropping since August 2011, with some ups and downs.  A chart reader would probably suggest it’s in something like a downward channel pattern.  It is concerning for GDP numbers, as these have generally been well correlated to the consumer spending portion of GDP.

We need to see a significant improvement in areas that would suggest a sustainable consumer recovery, namely a surge in income.  We saw an end to an upward trend in income around July 2012.  I anticipate that things will remain quite dreary for consumers in the coming months.

The consumer needs to have money to spend on discretionary items.  That money generally comes from jobs, and job growth is in a positive trend though not as steep a trend as we’d like.  Watch for those statistics on disposable income levels to really get a feel for whether consumers have money to spend.  The trend for disposable income has generally been slow growth since November 2011.  Still, it hasn’t resulted in a significant amount of consumer spending because consumers were (and are) still busy unwinding their unusually large debt levels.  Once that gets taken care of, their spending will be more in line with their incomes.

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: May 31, 2013

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 slightly worse than expectations.  This does not necessarily mean the reports are good or bad – just slightly worse than expectations.

Economic Indicators - Citigroup Economic Surprise Index United States - May 31 2013

Source: Thompson Reuters

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.  Also, check out my article on the relationship between the Citigroup Economic Surprise Index turning positive and the effects on the stock market.

Latest Reading (Approximate): Negative (-) 16 on May 31, 2013 (versus -21 two weeks ago) – NOTE: I no longer have free access to actual index values, so I am forced to approximate from the chart image.

Implications: The index recently rolled back over and headed downward again without reaching “positive” territory, thus staying in “neutral” territory.  Recently, it broke down below zero and appears headed lower.  Right now, economic reports are slightly worse than expectations, not necessarily good or bad – just slightly worse than expectations.  I’ll remind you of my post on the relationship between the Citigroup Economic Surprise Index and the S&P 500 (“the market”).

Keep in mind what is basically happening, as it is usually a cycle.  Expectations rise as a result of improving data, and then it becomes more likely that data will disappoint.  It doesn’t actually mean the data get worse, only that they disappoint versus expectations.  The reverse then happens in order to complete the cycle.  We hope that the downturns don’t go as deep as the upturns go high.

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: Employment Trends Index   |   NEUTRAL
Easy Intro to Employment Trends Index   |   Link  to Source   |   Latest Date This Info Represents: April 2013

Quick ‘n Easy

A combination of indicators related to the jobs market through April 2013 suggested that the coming months will probably show continued growth in jobs but at a slower rate than what is needed.  It likely won’t be enough to quickly push down the unemployment rate.

Employment Trends Index April 2013 - The Conference Board


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

Latest Reading: 111.68 for April 2013 (up 3.8% from one year ago) – March 2013 reading was revised up to 111.61

Implications: The index edged higher as it generally has been since late 2012.  According to an expert on the index, “Despite weak economic activity, the Employment Trends index is still signaling moderate job growth in the coming months. On average, employment has grown almost as fast as GDP over the past three years, and that is likely to continue into the third quarter of 2013. As a result, the average labor productivity of American workers will struggle to improve until GDP growth accelerates.”

This is consistent with my analysis of the April 2013 Employment Report and how the trend of sluggish growth continues.  Those comments suggest continued growth in jobs that mirrors whatever growth we see in the economy.

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   |   NEUTRAL
Easy Intro: None yet   |   Link to Source   |   Latest Date This Info Represents: April 2013

Quick ‘n Easy

An index combining 85 indicators into one number suggests that, over a three-month period, the economy was growing at virtually the historically average rate in April 2013.  This is good news, but it remains to be seen how long this will last.  It helps rule out a recession as of April at least.

Economic Indicators - Chicago Fed CFNAI-MA3 thru April 2013


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 April 2013 was negative (-) 0.04, which was nearly identical to the previous month’s revised reading of negative (-) 0.05.  This keeps the indicator at “neutral” by my ratings thresholds.  The single month CFNAI reading for April 2013 was negative (-) 0.53, which was a significant drop from the previous month’s revised reading of negative (-) 0.23.

Implications: In April specifically, economic activity was below historical averages (negative (-) 0.53 for the single month reading), and the more reliable way of looking at things shows an economy that was growing virtually at an average rate (-0.04).  That’s good news, and we want to see if this can keep up.  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.

The single-month reading for April was below historical averages, and it was a significant drop from the weak level we saw for the single-month reading in March.  I like to see how many components were within 0.10 units of zero (average), between 0.11 and 0.20 units (close to average) and greater than 0.20 units away from zero (well above/below average).  In summary, of the four broad categories of indicators in April, the breakdown looks like this:

  • Well Above Average: 0
  • Close to Average (positive): 0
  • Average (positive or negative): 2
  • Close to Average (negative): 1
  • Well Below Average: 1

One of the four components moved from one category level to another (using revised data from last month, not the original reading before revisions):

  • Production & Income: Down two spots from “average” rating to “well below average” rating
  • Employment, Unemployment & Hours: No change
  • Personal Consumption & Housing: No change
  • Sales, Orders & Inventories: No change

Looking at the range of indicators, 44 of the 85 total indicators were better in April than they were the previous month.  The “diffusion index” is a measure of how widespread the gains (or losses if it’s negative) were across the 85 indicators, and it is a three-month moving average.  The 3-month diffusion index for April was -0.03, meaning that there really wasn’t a consensus of movement direction over the last three months.  This was about the same diffusion index we’ve seen every month since November 2012.

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)   |   NEUTRAL
Easy Intro to Easynomics Real Estate Price Stability Index   |   Latest Date This Info Represents: April 2013 (contains estimated portion)

Quick ‘n Easy

An index designed to look at the stability of home prices indicates that, thru April 2013, we are below equilibrium – home prices would need to rise about 7.5 percent to reach a theoretical stable point.  If months of supply don’t begin to rise more significantly, the index will rise enough to reach a “reverse bubble” where home prices would be too low compared to a stable point.  It’s better for things to stay close to equilibrium.

Easynomics Real Estate Price Stability Index Mar2013 - Apr3May0Easy 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 April 2013, the EREPSI is at positive (+) 7.5003 percent, which means prices would need to rise 7.5 percent to reach a stable point.  The April reading is based on actual values for the “months of supply” components but uses an estimate for Case-Shiller HPI.  For recent trends, you can read my latest analysis on new residential homes inventory months of supply or existing homes sales and inventory months of supply.

Implications: After a strong move up starting in July 2011, the index mostly plateaued from December 2011 through July 2012 before turning upwards again.  Once again, it looks like the index may eventually form a “reverse bubble” where prices of homes would be artificially low and should be pressured to rise.  It depends on whether both the existing homes and new homes months of supply turn back up sharply, in which case they could hold back the index in the coming months.  It would be preferable to see home prices rise a bit, while inventory of new and existing homes rose a bit to normal levels (they’re still too low right now).  That would put things back in equilibrium.

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 Trends Dashboard

Updated: May 31, 2013
Consensus Score: +2.00   (vs +2.00 two weeks ago)
Interpretation:  Clearly in a positive direction with a few off-trend readings or unconfirmed trends

Indicator Trend Score* (change from last week)
Employment Report +3
Existing Homes Sales and Inventory Months of Supply +3
Factory Orders -1
GDP +3
Industrial Production +2
New Residential Homes Sales and Inventory Months of Supply +3
Personal Income Levels -1
Residential Investment +3
Unemployment Claims +3

*Trend Score Definitions:

  • Confirmed trend with no recent readings that are off trend: +3 (good direction) or -3 (bad direction)
    • For each consecutive recent reading that was off trend in the opposite direction, I move the score by one point in the direction of zero
  • Unconfirmed trend: +1 (good direction) or -1 (bad direction)
  • No trend that has at least 50 percent confidence: 0

Easy Take

Last (two) weeks’ data resulted in no changes in ratings.  We saw deterioration in the Bloomberg Financial Conditions Index though.  Fortunately, that index is so high that it isn’t in too much danger of signaling anything bad anytime soon.  Consumers remain in a poor position though.  The EREPSI was so incredibly close to changing to “positive” (it was a few decimal points above +7.50) but it would have been short lived if trends continue anyway.

We saw no movement in the Easy Trends Dashboard over the last two weeks.  The overall average for the dashboard still clearly points in a positive direction.  Personal income and factory orders are the only negative components in the Easy Trends Dashboard right now.

We currently have 1 positive, 5 neutral and 1 negative economic indicators.  Using a scale of positive=3, neutral=2 and negative=1, this yields an average rating of 2.00 out of 3.00 (versus 2.00 two weeks ago), which falls in the middle third of the possible range.  In other words, my set of economic indicators combine into a “neutral” rating.  The consensus view of the above indicators is that economic conditions are consistent with positive growth but below the historical average rate.  Trends are generally headed in a good direction with a few off-trend readings or unconfirmed trends here and there.

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.