Economic Indicators Dashboard – March 2015 update
- A blue color band represents the typical range for this indicator. +/- 1 standard deviation of historical values for the indicator fall in this range.
- An orange marker shows the most recent value – the closer the marker is to the blue bar, the closer it is to historically typical conditions.
- A grey area outside of the blue band which shows the range actual conditions.
- An arrow shows the most recent three-month trend indicating if it is moving toward or away from the typical range
- First, moving left on the dashboard is, in some cases, actually a good thing.
- Second, there is a fair amount of volatility in these measures from period to period. Taking an additional minute or two to digest the data in its entirety can be helpful.
Market (leading) Indicators
- Market Volatility as measured by the VIX1 – Lower volatility is generally a good thing, and an indicator that the investors may not be anticipating any significant economic or capital market disruptions. So, to see this indicator slide to the left (lower) is generally a good thing.
- 10-Year U.S. Treasury Yield – The low yield can be frustrating for investors attempting to generate income from investment portfolios, but the low rates have generally been additive to the economy and the U.S. capital markets. Rates remaining low is generally seen as a positive.
- Yield Spread – An upward sloping yield curve is generally a sign that the bond market expects continued economic expansion. Continued flattening may be a watch point, but the current steepness is still above historical average.
- Home Prices – The one indicator moving in the “right” (upwards) direction. A positive housing market tends to be a boost to the overall economy, generating additional activity related to new construction, remodeling, and furnishing.
Economic (lagging) Indicators
- Inflation – Currently posting a negative number, which could raise concerns about deflation. However, that negative number could be driven by the drop in energy prices. Generally lower energy prices is a net positive for the economy, so concern about the inflation number should be restrained. This is a good reminder of why economists often pull out energy and food numbers from their inflationary data as it tends to be volatile from period to period.
- Unemployment – Pretty straightforward, the number is coming down.
- Economic Expansion – The current number is coming off an unusually strong prior quarter. Overall, the U.S. economy appears to be settling in around 2.5% GDP growth, which is solid and sustainable, but not likely to get anyone excited.
- Consumer Sentiment – Coming off a high number in the prior period accounts for the direction of the arrow. The indicator remains noticeably above historical average and bodes well for the U.S.’s consumer driven economy.
The bottom lineDespite the initial appearance of the majority of the economic indicators tracked in the Dashboard heading in the “wrong” direction at the same time, a second look at the measures verifies that the U.S. economy currently appears to be on solid ground. There does not seem to be a compelling reason for investors to move away from their long-term strategy of investing in globally diversified portfolios adjusted to their individual risk tolerance.
1 The VIX index is the commonly used name for the CBOE SPX VOLATILITY INDEX.