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NOTE: You may be reading an outdated analysis.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:

  • 11 – Guilty (Win)
  • 7 – Not Guilty (Loss)
  • Conviction Rate = 61 percent

Leading Indicators vs October 2013

Original charge made in April 2013: “The Leading Indicators hereby charge that October 2013 shall be a NEUTRAL month, as indicated by a positive annualized growth rate but below the historical average of 3.3 percent.”

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

The U.S. Coincident Index for October 2013 rose at an annualized rate of 2.7 percent from the index value three months prior.  This is consistent with an economy that is growing but at a slower pace than historical averages.

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 October 2013, the Conference Board’s Coincident Economic Indicator rose at a 2.7 percent annualized rate.  This is consistent with an economy that is growing but at a slower pace than historical averages.

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

The moving average of the last three months (CFNAI-MA3) for October 2013, after one revision, was positive (+) 0.12.  This is consistent with an economy that is growing at a rate that is slower than the historical average of 3.3 percent.

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 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 D – ADS Business Conditions Index | POSITIVE

The average daily value of the ADS Business Conditions index for the previous two months and thru October 2013 was positive (+) 0.160.  This is consistent with an economy that is growing at a rate that is at or above the historical average of 3.3 percent.

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 and the previous two months.  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

GUILTY - Easynomics has determined that October 2013 was a NEUTRAL month (based on averaging the ratings above using simple scale of 1 thru 3).  The month is 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:

  • 12 – Guilty (Win)
  • 7 – Not Guilty (Loss)
  • Conviction Rate = 63 percent

NOTE: A random guess would yield the correct result only 33 percent of the time, so the leading indicators are definitely worth noting.

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