Economic Indicators Roundup (November 4, 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 from previous roundup)
ADS Business Conditions Index Positive   (Upgrade)
Bloomberg Financial Conditions Index Positive
Daily Consumer Leading Indicators Negative
Citigroup Economic Surprise Index Neutral
Employment Trends Index Positive
Chicago Fed National Activity Index Neutral
Easynomics Real Estate Price Stability Index Positive
Easy Trends Dashboard   (min/max -3 to +3) +2.11 = Most likely moving in a positive direction, with some unconfirmed trends or off-trend readings

NOTE: You may be reading an outdated analysis.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



Economic Indicator: ADS Business Conditions Index   |   POSITIVE   (Upgrade)
Easy Intro to ADS Business Conditions Index   |   Link to Source   |   Latest Date This Info Represents: October 26, 2013

Quick ‘n Easy

A combination of several key indicators of business conditions suggests, with high confidence, that at the end of July 2013 (most recent date for which there is data for all components of the index), conditions were slightly worse than average (-0.124).  As of about a week and a half ago, it suggested, with low confidence, that current conditions were slightly above average (+0.107), historically speaking.  The index suggests that economic activity has mostly remained below average since the start of 2013 but may have turned slightly above average since mid-August.

Economic Indicators - ADS Business Conditions Index October 26 2013

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 Readings:

October 26, 2013: Positive (+) 0.107 (includes weekly unemployment figures and maybe one other indicator)

One week prior: Positive (+) 0.106
One month prior: Positive (+) 0.094
One quarter prior: Negative (-) 0.173

The most recent date for which there is data for all components of the index is end of July 2013, when conditions were slightly worse than average (-0.124).

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 suggest that conditions moved slightly into positive territory in mid-August and stayed there since.  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: November 1, 2013

Quick ‘n Easy

An index of financial stress moved higher from the previous week to its highest levels of the recovery and 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.

Economic Indicators - Bloomberg US Financial Conditions Index November 1 2013

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:  Positive (+) 1.66   (versus a reading of +1.54 one week ago)

Implications:  This measure of financial stress moved even higher compared to the week before, and it’s the highest it has been since the recovery began.  As such, this index remains 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: November 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 November 1, was about 25% below a fairly normal level seen in the year 2005.

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

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 September 2013

Courtesy: ConsumerIndexes.com

Latest Reading: Absolute Demand Index daily reading is approximately 75 for November 1, which means preparations for consumer discretionary purchases are about 25% 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 (unconfirmed) in personal income.  I anticipate that things will remain lackluster for consumers’ incomes 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 very slowly rising the last couple of years.

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: November 1, 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 very close to expectations.  This does not necessarily mean the reports are good or bad – just very close to expectations.

Economic Indicators - Citigroup Economic Surprise Index United States - November 1 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): Positive (+) 5 on November 1, 2013 (versus +17 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: After spending some time around the 50 level, the index dropped the past few weeks and is now back in “neutral” territory but still barely on the positive side.  In other words, economic reports are very close to expectations, not necessarily good or bad – just very close to 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   |   POSITIVE
Easy Intro to Employment Trends Index   |   Link  to Source   |   Latest Date This Info Represents: September 2013

Quick ‘n Easy

A combination of indicators related to the jobs market through September 2013 suggested that the coming months will probably show stronger growth in jobs than we’ve been seeing.  Whether it pushes down unemployment rates at a faster rate remains to be seen, but it was an optimistic report finally!

Employment Trends Index September 2013 - The Conference Board

Source: Conference-Board.org

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

Latest Reading: 114.78 for September 2013 (up 6.3% from one year ago) – August 2013 reading was revised up to 113.98

Implications: The index pushed higher as it generally has been since late 2012, but it has accelerated in August and September.  According to an expert on the index, “The Employment Trends Index accelerated in August and September, with improvements across all eight components during these two months. In contrast to the gloomy headlines from Tuesday’s jobs report [for September], the ETI signals upward momentum in labor market conditions in the months ahead.”

TRANSLATION: The months ahead may actually look like “good times” in the labor market, even though the latest jobs report didn’t seem to be all that great.

This is more optimistic than my analysis of the September 2013 Employment Report and how the trend of sluggish growth continues.  Those comments suggest that jobs growth will improve 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   |   NEUTRAL
Easy Intro: None yet   |   Link to Source   |   Latest Date This Info Represents: August 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 August 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 August at least.

Economic Indicators - Chicago Fed CFNAI-MA3 thru August 2013

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 August 2013 was negative (-) 0.18, 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 August 2013 was positive (+) 0.14, which was a huge improvement from the previous month’s revised reading of negative (-) 0.43.

Implications: In August specifically, economic activity was slightly above historical averages (positive (+) 0.14 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 (-0.18).  This isn’t a great number, but it is the “best” month that we’ve seen since April.  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 August was slightly above historical averages, and it was a huge improvement from the level we saw for the previous single-month reading.  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: 1
  • Close to Average (positive): 0
  • Average (positive or negative): 2
  • Close to Average (negative): 1
  • Well Below Average: 0

ONE of the four components moved from one category level to another (using revised data from last month):

  • Production & Income: Jumped up three levels from “close to average negative” to “well above average”
  • Employment, Unemployment & Hours: No change
  • Personal Consumption & Housing: No change
  • Sales, Orders & Inventories: No change

Looking at the range of indicators, 52 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 (-) 0.10, meaning that there was very slight consensus of indicators’ direction over the last three months being negative.  This was a slight improvement over last month’s diffusion index of -0.16.

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: August 2013 (contains estimated portion)

Quick ‘n Easy

An index designed to look at the stability of home prices indicates that, thru August 2013, we are essentially at equilibrium – home prices would need to rise about 1.4 percent to reach a theoretical stable point.  This keeps the indicator at “positive” as it’s better for things to stay close to equilibrium.  If trends continue, however, there may be building pressure for home prices to rise again in the coming months.

Easynomics Real Estate Price Stability Index Aug2013 - Sep2Oct0Easy 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 August 2013, the EREPSI is at positive (+) 1.4 percent, which means prices would need to rise 1.4 percent to reach a stable point.  The August 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: Back in January 2013, the EREPSI was in “negative bubble” territory actually.  That means that prices were so far below the stable point that the upward pressure on prices was probably a bad thing.  I don’t like to see things out of equilibrium in the housing market.  What happened next?  Predictably, there was a surge in home prices.  But inventory levels began to increase again, and as the EREPSI began approaching zero again, it looks like things may have stabilized a bit.  The last two readings (July, August) have both been within 1.5 percent of equilibrium, well within the range I consider a positive for the economy.  If recent trends continue, it is likely this index will begin to rise again to a peak of about 12.5 percent in January 2014 – implying that there will be building pressure for prices to rise again in the coming months.  Homeowners may enjoy this “wealth effect” but it’s not all that great for economic conditions for there to an imbalance in any direction.

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: October 31, 2013
Consensus Score: +2.11   (vs +2.56 one week ago)
Interpretation:  Most likely moving in a positive direction, with some unconfirmed trends or off-trend readings

Indicator Trend Score* (change from last roundup)
Employment Report +3
Existing Homes Sales and Inventory Months of Supply +3
Factory Orders +2
GDP +3
Industrial Production +3
New Residential Homes Sales and Inventory Months of Supply +2
Personal Income Levels +1
Residential Investment +3
Unemployment Claims -1   (Down by 4)

*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

The ADS Business Conditions Index moved back above the threshold I’d consider for “positive” status, so that’s our only ratings change this week.  There was also really nice improvement in the Bloomberg Financial Conditions Index, meaning financial stress is really no concern right now.  The single upgrade was enough to move the consensus of my indicators back to a healthy “positive” status!  Remember that there are some economic reports that haven’t come in yet that will show some impact from the government shutdown.  Still, this is definitely good news.

The Easy Trends Dashboard moved down a bit this week, and it’s now pointing to a probable improvement in trends, not so certain as last time.  Every component of the Easy Trends Dashboard is still positive except one – and that’s the unemployment claims that were probably temporarily affected by the shutdown.  I expect that indicator to move back into the positive side soon.  The overall average for the trends dashboard suggests that indicators I follow are probably headed in the right direction for the most part.

We currently have 4 positive, 2 neutral and 1 negative economic indicators.  Using a scale of positive=3, neutral=2 and negative=1, this yields an average rating of 2.43 out of 3.00 (versus 2.29 last month), which falls in the middle 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.  Trends are probably 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.

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