Economic Indicators Roundup (September 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 …)
|Indicator (Click for details – only works if full article is open)||Current Rating (change from previous roundup)|
|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||Positive|
|Easy Trends Dashboard||+2.72 = Clearly in a positive direction, with very few unconfirmed trends or off-trend readings|
NOTE: You may be reading an outdated analysis. Please visit my latest economic indicators roundup.
Quick ‘n Easy
A combination of several key indicators of business conditions suggests, with high confidence, that at the end of June 2013 (most recent date for which there is data for all components of the index), conditions were a little worse than average (-0.219). As of about a week and a half ago, it suggested, with low confidence, that current conditions were slightly below average (-0.124), historically speaking. The index suggests that economic activity has mostly remained below average since the start of 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.
August 24, 2013: Negative (-) 0.124 (includes weekly unemployment figures and maybe one other indicator)
One week prior: Negative (-) 0.142
One month prior: Negative (-) 0.195
One quarter prior: Negative (-) 0.121
The most recent date for which there is data for all components of the index is end of June 2013, when conditions were a little worse than average (-0.219).
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 July 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: August 30, 2013
Quick ‘n Easy
An index of financial stress worsened from the previous week but still remains well inside what I’d consider “positive” territory. It is signaling that financial stress is so low that it is helping the economy right now.
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 (+) 1.19 (versus a reading of +1.32 one week ago)
Implications: This measure of financial stress worsened last week from the week before. Nevertheless, right now, this index is still 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: August 31, 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 August 31, was about 22% 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 78 for August 31, which means preparations for consumer discretionary purchases are about 22% 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 are currently in the middle of a very slowly rising trend in personal income that happens to be at risk of ending. 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 about flat since March.
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 slightly better than expectations. This does not necessarily mean the reports are good or bad – just slightly 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. 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): Positive (+) 33 on August 30, 2013 (versus +30 one week 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 surged upward a few weeks ago but has been up and down the past week or two. Right now, economic reports are slightly better than expectations, not necessarily good or bad – just slightly better 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.”
Quick ‘n Easy
A combination of indicators related to the jobs market through July 2013 suggested that the coming months will probably show continued growth in jobs but at a slower rate than what is needed, even though it may be somewhat faster than we saw the first half of 2013. It likely won’t be enough to quickly push down the unemployment rate.
Easy Description: Combines several indicators together to provide an outlook for employment growth.
Latest Reading: 112.16 for July 2013 (up 4.1% from one year ago) – June 2013 reading was revised up to 111.67
Implications: The index edged higher as it generally has been since late 2012. According to an expert on the index, “The Employment Trends Index continues to grow moderately, suggesting no major changes are expected in the pace of job growth. With economic activity remaining weak through the second quarter, solid employment growth continues to be a positive surprise. Jobs may grow faster in the coming quarters as the U.S. economy is likely to get stronger towards the end of 2014.”
This is consistent with my analysis of the July 2013 Employment Report and how the trend of sluggish growth continues. Those comments suggest continued sluggish growth in jobs, just as we see sluggish growth in the overall 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: July 2013
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 slower than historical averages in July 2013. This isn’t great news, but at least it wasn’t low enough to consider a recession. It helps rule out a recession as of July at least.
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 July 2013 was negative (-) 0.15, which was a slight improvement from the previous month’s revised reading of negative (-) 0.24. This keeps the indicator at “neutral” by my ratings thresholds. The single month CFNAI reading for July 2013 was negative (-) 0.15, which was a slight improvement from the previous month’s revised reading of negative (-) 0.23.
Implications: In July specifically, economic activity was slightly below historical averages (negative (-) 0.15 for the single month reading), and the more reliable way of looking at things shows an economy that was growing at a rate below historical averages (-0.15). This isn’t a great number, but it is the second consecutive month that we’ve seen an improvement in this figure. 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 July was below historical averages, but it was a slight improvement from the level we saw for the single-month reading in June. 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 the latest month, the breakdown looks like this:
- Well Above Average: 0
- Close to Average (positive): 0
- Average (positive or negative): 3
- Close to Average (negative): 1
- Well Below Average: 0
ZERO of the four components moved from one category level to another (using revised data from last month):
- Production & Income: No change
- Employment, Unemployment & Hours: No change
- Personal Consumption & Housing: No change
- Sales, Orders & Inventories: No change
Looking at the range of indicators, 53 of the 85 total indicators were better this month 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 the latest month was negative (-) 0.02, meaning that there was no consensus of indicators’ direction over the last three months. This was a very slight improvement over last month’s diffusion index of -0.03 and the second consecutive improvement.
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: July 2013 (contains estimated portion)
Quick ‘n Easy
An index designed to look at the stability of home prices indicates that, thru July 2013, we are essentially at equilibrium – home prices would need to fall about 0.3 percent to reach a theoretical stable point. This keeps the indicator at “positive” as it’s better for things to stay close to equilibrium.
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 July 2013, the EREPSI is at negative (-) 0.3 percent, which means prices would need to fall 0.3 percent to reach a stable point. The July 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: A big jump in months of supply for new homes in July contributed to a drop in the EREPSI, moving it almost perfectly into equilibrium, which I consider a positive for the economy. Of course, we’ll need to see what happens to inventory in the coming months. If recent trends continue, it is likely this index will remain close enough to equilibrium through at least June 2014 to stay at the “positive” rating, with the possible exception of one month (Jan 2014).
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.”
Updated: August 30, 2013
Consensus Score: +2.72 (vs +2.56 one week ago)
Interpretation: Clearly in a positive direction, with very few unconfirmed trends or off-trend readings
|Indicator||Trend Score* (change from last roundup)|
|Existing Homes Sales and Inventory Months of Supply||+3|
|GDP||+3 (up by 2)|
|New Residential Homes Sales and Inventory Months of Supply||+2.5|
|Personal Income Levels||+1|
*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
Last week, there wasn’t enough movement in any of my roundup indicators to shift ratings. The Citigroup Economic Surprise Index is teetering on the edge between “positive” and “neutral” though. While it didn’t result in a rating change, the Bloomberg Financial Conditions Index dropped a decent amount, indicating that the financial stress in US markets isn’t quite as calm as it was before. But it has so much cushion, we’re nowhere near a worrying point yet. The increase in financial stress is probably due to the situation brewing in Syria along with some nervousness about the upcoming Federal Reserve decisions related to tapering their stimulative “quantitative easing” program.
The Easy Trends Dashboard improved as a result of an upward revision to the GDP figures for Q2. The personal income report released last week was disappointing though, which leaves personal income levels as the only item in my trends dashboard that isn’t a really bright spot. Still, the overall average for the trends dashboard suggests that indicators I follow are clearly headed in the right direction for the most part.
We currently have 2 positive, 4 neutral and 1 negative economic indicators. Using a scale of positive=3, neutral=2 and negative=1, this yields an average rating of 2.14 out of 3.00 (versus 2.14 one week 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 very likely headed in a good direction.
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.