In today’s post we’ll update the top 6 economic indicators as of mid March 2017. Each of the 6 indicators is updated with February data. Last month’s update is here. For background on the top 6 see here.
The table below shows the current heatmap for the top 6 indicators.
Just like last month all of the indicators are green. Here’s a brief update on each.
- Unemployment rate – Feb was another strong month for employment. UER is back down to 4.7%. Below it’s 12 month SMA. No signs of weakness in this indicator.
- Real retail sales – Feb’s year over year change held steady at 2.5%. No deterioration here either. Bonded blog had a good post this past week on real retail sales that is well worth reading.
- Industrial production – this month’s year over year change in IP slowed to 3.2%. Still not near a recession trigger.
- Permits – the headline permit number slowed quite a bit in February but this was after Jan’s blowout. Due to the noise in this series we use the year over year change in the 3 month SMA. That figure showed improving growth at 5.2%, up from last month’s reading.
- Leverage – about the same as last most at -0.80. No signs of concern here.
- Yield curve – slightly tighter at month end at 190 bps but still well above last July’s low of 121 bps. As of this past Friday, post rate hike, it has narrowed a bit further to 180 bps.
Overall, a positive situation. Of course there is always something to worry about. This week’s finance twitter freakout seems to be centered around the weakness in the Atlanta FED’s GDPnow for Q1 2017 forecast which is down to 0.9% in it’s latest reading. Something to keep an eye on but other GDP nowcasts like the NYFED and the St Louis FED are not showing the same weakness and are currently much stronger at 2.8% and 2.5% respectively. Another area of concern seems to be the slowdown in credit growth (see here if interested). Typically not a good indicator used on its own.
That’s it for this month. In summary, all 6 individual economic indicators are currently green.
4 Comments
Mark · March 19, 2017 at 8:17 am
Hi Paul,
Good summary and appreciate your continued efforts to help us that manage our own portfolios. I may have missed this in your earlier posts, but are these economic indicators mostly for guidance, or is there any formulaic methodology if they turn yellow or red to trigger changing positions. I think it is the former, but want to make sure I am not missing anything here.
Thanks!
Mark
paul.novell@gmail.com · March 20, 2017 at 6:12 am
Hey Mark, there is a methodology coming…it’s pretty simple. Similar to the SPY-UI system, you can use a system based on a composite of the 6 indicators. When one of them triggers you go on watch and use the SPX 200 day SMA to make investing decisions. Let’s call it the SPY-COMP indicator. I’m still gathering some data but it performs better than SPY-UI.
Paul
MickyC · March 20, 2017 at 4:39 am
Thanks Paul, appreciate it.
John Govert · March 20, 2017 at 1:45 pm
Paul,
Really like the posts….Like Mark’s question, I have been wondering if you were coming into a composite, quantitative trigger for these economic indicators…. You answered that one clearly…..I was starting to play with one of these myself, but I am not equipped at back-testing just yet…
I know I am getting a little ahead here, but I was wondering if the SPY-COMP indicator would apply to only the US equity asset class? In other words, I am working with a Antonacci-like Composite Dual Momentum approach, with 5 overall asset classes (Equity, Bond, REIT, Commodity, and Economic Stress). I assume the SPY-COMP trigger should only apply to the Equity portion of the portfolio (or, maybe, Equity and REIT, since they have higher correlation). Am I on the right track here?
John
Comments are closed.