Submitted by Lance Roberts of Street Talk Live blog,
I have been writing extensively about the data behind the headline media reports and discussing the importance of the underlying data trends relative to the broader macroeconomic perspectives. However, it is sometimes helpful just to view the various economic indicators and draw your own conclusions outside of someone else’s opinion.
With the economy now 48 months into an expansion, which is long by historical standards, the question for you to answer by looking at the charts below is:
“Are we closer to an economic recession or a continued expansion?”
How you answer that question should have a significant impact on your investment outlook as financial markets tend to lose roughly 30% on average during recessionary periods. However, with margin debt at record levels, earnings deteriorating and junk bond yields near all-time lows, this is hardly a normal market environment within which we are currently invested.
Therefore, I present a series of charts which view the overall economy from the same perspective utilizing an annualized rate of change. In some cases, where the data is extremely volatile, I have used a 3-month average to expose the underlying data trend. Any other special data adjustments are noted below.
Leading Economic Indicators
ISM Composite Index
Employment & Industrial Production
Personal Income & Consumption
(Note: The Economic Composite is a weighted index of multiple economic survey and indicators – read more about this indicator)
If you are expecting economic recovery and a continuation of the bull market then economic data must begin to improve markedly in the months ahead. If not, the drag of economic growth will ultimately continue to erode corporate earnings, profitability and weigh on the financial markets.
For the Federal Reserve these charts do make it clear that despite continued monetary interventions are not healing the economy but simply keeping it afloat by dragging forward future consumption. The problem is that it leaves a void in the future that must be filled.
In my opinion the economy is far to weak to stand on its own two feet. Therefore, while the Fed may ease off on the current rate of bond purchases, likely not before September, it is highly unlikely that they will remove their “highly accommodative stance” anytime soon.