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Steven Hansen
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Steven Hansen is an international business and industrial consultant specializing in turning around troubled business units; consults to governments to optimize process flows; and provides economic indicator analysis based on unadjusted data and process limitations.
My company:
Econintersect LLC
My blog:
Global Economic Intersect
  • Further Evidence Economic Rate Of Growth Is Slowing 3 comments
    Mar 29, 2014 10:26 AM

    This week the the Chicago Fed National Activity Index (CFNAI) 3 month moving (3MA) average went negative. A negative number means the economy is growing below its historical rate. For the previous five months in a row, the economy was expanding above the historical trend rate of growth.

    This index IS NOT accurate in real time - and it did miss the start of the 2007 recession.

    One more point, the headlines talk about the single month index which is not used for economic forecasting. Economic predictions are based on the 3 month moving average. This index is very noisy and the 3 month moving average would be the way to view this index in any event. Note that the single month index is very noisy which is a secondary reason to keep your eyes on the 3 month moving average.

    This index is a rear view mirror of the economy.

    A value of zero for the index would indicate that the national economy is expanding at its historical trend rate of growth, and that a level below -0.7 would be indicating a recession was likely underway. Econintersect uses the three month trend because the index is very noisy (volatile).

    CFNAI Three Month Moving Average (blue line) with Historical Recession Line (red line)

    As the 3 month index is the trend line, the trend is currently showing a decelerating rate of growth. As stated: this index only begins to show what is happening in the economy after many months of revision following the index's first release.

    CFNAI Three Month Moving Average Showing Month-over-Month Change

    The CFNAI is a weighted average of 85 indicators drawn from four broad categories of data: 1) production and income; 2) employment, unemployment, and hours; 3) personal consumption and housing; and 4) sales, orders, and inventories.

    CFNAI Components - Production & Income (orange line), Employment / Unemployment & Hours (green line), Personal Consumption & Housing (blue line), and Sales / Orders & Inventory (red line)

    Low Personal Consumption has been a headwind on the index for the last two years. The other three elements of the CFNAI have taken turns dragging the index down.

    Other Economic News this Week

    The Econintersect Economic Index for March 2014 is showing a moderate growth deceleration. There are soft data points we watch outside of our index which bears watching. Nothing at this time is pointing to real economic contraction, but there is enough data sets in the warning track to let you know that the economy is far from running on all cylinders.

    The ECRI WLI growth index value has been weakly in positive territory for over four months - but in a noticeable improvement trend. The index is indicating the economy six month from today will be slightly better than it is today.

    Current ECRI WLI Growth Index

    Initial unemployment claims went from 320,000 (reported last week) to 311,000 this week. Historically, claims exceeding 400,000 per week usually occur when employment gains are less than the workforce growth, resulting in an increasing unemployment rate. The real gauge - the 4 week moving average - marginally improved from 327,250 (reported last week as 327,000) to 317,750. Because of the noise (week-to-week movements from abnormal events AND the backward revisions to previous weeks releases), the 4-week average remains the reliable gauge.

    Weekly Initial Unemployment Claims - 4 Week Average - Seasonally Adjusted - 2011 (red line), 2012 (green line), 2013 (blue line), 2014 (orange line)

    (click to enlarge)

    Bankruptcies this Week: The Dolan Company, Money Centers of America, Global Geophysical Services

    For a complete lists of economic and financial posts this week [click here].

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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  • dancing diva
    , contributor
    Comments (2752) | Send Message
    To be fair it should be noted the reason for the 3 month negative figure was that Feb 2014 was less positive than the month that was dropped (Nov 2013). And that several times since 2010 has the 3 month average been lower. After negative Dec and Jan monthly figures, Feb was positive which might indicate an improving trend. I would have waited until March before I sounded the alarm (or wrote this column). Only then will the weather have been taken out of the equation.
    29 Mar 2014, 02:53 PM Reply Like
  • Steven Hansen
    , contributor
    Comments (2300) | Send Message
    Author’s reply » no alarm being sounded. the usa economy had a terrible start last year also - and the cfnai is below last year. the purpose of these posts is to refute the growing chorus of people saying that the economy is improving (must be in their dreams).
    30 Mar 2014, 08:36 AM Reply Like
  • Moon Kil Woong
    , contributor
    Comments (13557) | Send Message
    I agree that growth is decelerating as is housing demand. I disagree with unemployment pointing the way for 2 reasons. 1) Current unemployment figures are simply reflecting those being cut from the rolls because of legal changes that are expiring the extended unemployment claims that were in effect for an unprecedented timeframe. 2) Unemployment drops always look similar to this in an up cycle and more often than not turn very ugly after 4-5 years. They are not meant to forecast the future, merely give one a perspective of the very short term if anything. One needs to look at the participation rate to see the state of the economy which has been getting worse the last 5 years. Thus it is easy to see why the economy is not performing.
    30 Mar 2014, 08:40 PM Reply Like
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