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Brad Reinard is Managing Director and Editor-in-Chief of Monthly Cash Thru Options LLC, a leading index credit spread & iron condor options advisory newsletter and auto-trade service provider. We focus on non-directional, income generating options trading strategies that use the SPX, SPY, NDX,... More
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  • How Healthy is the US Economy? Let's Look at the Data 0 comments
    Oct 7, 2010 6:58 PM

    Below are a selection of macroeconomic indicators that have been released over the last two weeks, as of October 1, 2010, that provide us a big-picture, fundamental view of the health of the US economy.  If/when the US economy and corporate earnings begin to weaken we'll be able to monitor the gradual deterioration of the economy and this information will help us  1) reduce our downside exposure by opening fewer bullish trades;  2) trigger us to open a long term hedge to protect some of our trades; 3) alert us to possibly start opening bearish directional trades; and 4) tell us when it's time to move to the sidelines. 

    The Chicago PMI increased to 60.4 in September from 56.7 in August, showing that the Mid-West region continues to expand at a healthy pace and is bucking the negative trend found in most of the nation.  Any reading over 50 tells us that manufacturing and business activity is in an expansion mode.

    The 3rd and final reading of Q210 GDP (annualized) came in at 1.7%, a little better than expected.  Overall, the US economy continues to grow, but very slowly.  The deflator (orange line) came in at 2%, which was good since it indicates that deflation is not yet a problem.

    The S&P/Case Shiller National Price Index using data through July 2010 shows that housing prices in 20 major US markets have remained stable and/or are slightly increasing, which is good news.  Any reading above the 0% horizontal line tells us that housing prices are increasing.


    The ISM Index came in a little under expectations for September at 54.4, but it still remains above 50 telling us that US manufacturing activity nationwide continues to expand.

    Initial Unemployment Claims
    came in at 453k and continues to remain stuck above 450k. Because this number fluctuates widely from week to week, economists monitor the 4 week simple moving average (NYSE:SMA) that is represented by the orange line.  The economy will not start to add appreciable jobs until this number drops below 400k new claims.  The second chart shows the same 4 week average, but going back to 1992 to provide insight on how the initial claims number behaves before, during and after recessions.



    Personal Income
    rose 0.4% in August, up from 0.2% growth in July, which was a good number.  However, most of this income growth was not from the private sector, but was from the US government extending unemployment insurance.  Therefore, this number cannot really be trusted yet.

    The headline number for Durable Orders showed that it decreased month-over-month by 1.3%.  However, and more importantly, after stripping out volatile transportation orders, Durable Goods Orders increased by 2.0% in August and every sub-component showed solid growth.  This strong result reduces the chance that the US economy will go into a double dip.

    Month-over-month personal spending came in at 0.4% growth, better than consensus of 0.3% growth, telling us that consumers are still pulling their wallets out, which is good news.

    Below is the US treasury yield curve showing that it is still sloping upward, telling us that the economy will continue to grow and interest rates on treasuries are expected to rise in the future.  However, the slope of the yield curve has been flattening a little, especially since the FED announced that they will inject further quantitative easing into the economy (i.e. print more money), so this is something we need to monitor.

    PCE Inflation (personal consumption expenditures) came in at 1.4%, just below the FED's target range of 1.5% to 2.0%.  The 1.4% level is actually optimum because it's just below the FED's target range, but not too low telling us that deflation is not yet a problem, inflation is not yet a problem, and that the FED will still probably intervene with further loose monetary policy (i.e. turn on the printing presses) to reflate the economy.  (aka quantitative easing)  Overall, this scenario is bullish for stocks

    The Conference Board Leading Economic Indicator (NYSEMKT:LEI) -  The Conference Board is a highly respected independent economic research house.  One of their closely watched indicators is the Leading Economic Indicator, or LEI, which comprises 10 economic components. 

    Conclusion for LEI Index:   The LEI increased 0.3 percent in August to 110.2 following a 0.1 percent increase in July, and a 0.2 percent decline in June. According to Ken Goldstein, an economist at The Conference Board, "While the recession officially ended in June 2009, the recent pace of growth has been disappointingly slow, fueling concern that the economic recovery could fade and the U.S. could slide back into recession. However, latest data from the U.S. LEI suggest little change in economic conditions over the next few months. Expect more of the same – a weak economy with little forward momentum through 2010 and early 2011."

    Conclusion from the Macro-level Fundamental View of US Economy's Health -  The US economy took a pause, but will continue to grow slowly and unevenly and most likely will not enter into a double dip recession.

    About The Author
    Brad Reinard is Editor-in-Chief of Monthly Cash Thru Options LLC, a leading index credit spread & iron condor options advisory newsletter, which has the following track record:  92% 2009; 33% 2008; 63% 2007; 42% 2006; 50% 2005.  For more on our returns please go to  The MCTO advisory focuses on a non-directional, income generating options trading strategy using the DJX, SPX, SPY, OEX, RUT and QQQQ indexes and ETFs.  For more information on the robust technical, fundamental & macroeconomic analysis that the MCTO team performs weekly to help guide our credit spread and iron condor trades, please visit or call Brad directly toll-free at 877-248-7455.  Brad has a B.S. in Electrical Engineering from Columbia University and an MBA from the University of Chicago Booth School of Business. He resides in the San Francisco bay area with his wife and 3 children.

    Disclosure: not applicable
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