10 Economic Warning Signs In 1 Week

Includes: DIA, IWM, QQQ, SPY, XHB
by: Markos Kaminis

The week that just passed produced 10 economic data points that offer warning about the U.S. economy. The economy clearly appears to be slowing, as data point after data point has directed our attention to that likelihood over the last several months. This past week offered some serious warning signs that should not be ignored, and by the looks of it, stocks took notice, too.

Index Security

Week Ended April 19





PowerShares QQQ (NASDAQ:QQQ)


iShares Russell 2000 (NYSEARCA:IWM)


Corporations are starting to chime in now as well, as cyclical stocks like Caterpillar (NYSE:CAT), GE (NYSE:GE) and IBM (NYSE:IBM) are either reporting weaker than expected results or have already warned of developing trouble. Then there is perhaps the tell-tale signal, weakness in consumer barometer Apple (NASDAQ:AAPL) alongside skepticism about other tech and electronics players, some of which have soothed those concerns -- i.e., Google (NASDAQ:GOOG) and Microsoft (NASDAQ:MSFT) last week.

The warning signs were varied last week across sectors of the economy, and were found in broad reaching measures as well. Certainly some of the data points listed here below are more compelling than others, but each in its own way points to deterioration.

Economic Data

Last Week's Result

Prior Month


Leading Indicators




Manufacturing Production




NY Manufacturing




Philly Manufacturing




Housing Market Index




Housing Permits




Core CPI




4-Week Ave. Claims




ICSC Store Sales Wk/Wk




Foreign Demand for Long-Term US Securities

-$17.8 Bln.

+$25.7 Bln.


10 Economic Warning Signs

First and foremost, the Leading Indicators Index (LEI), reported on Thursday by the Conference Board, dropped by 0.1% in March to 94.7. That followed 0.5% gains in both January and February. This seemed to verify something I heard CNBC's Steve Liesman say recently about economic slippage, when he called it a late March developing issue. The LEI offered some important insight, as weakness was found in component measures including consumer expectations and housing permits, and strength was found in areas where the Fed and the government provide synthetic support, for instance, interest rate spreads. It's also notable that the measure of current conditions was lower because of decreased personal income, which is directly attributable to the expiration of the payroll tax break at the start of the year. That's an important issue I've pointed to in recent work.

Most of the bad news was found in manufacturing, where three data points fell off. The Empire State Manufacturing Survey, Philly Fed Survey and Manufacturing Production found within the Industrial Production Report all either showed slowing growth or outright contraction. The regional manufacturing measures are nearing zero, beyond which economic contraction begins. Industrial Production slowed to a pace of +0.4% in March, down from +1.1% the month before, but manufacturing production contracted 0.1%, against 0.9% growth the month before. The March manufacturing production contraction was also a surprise to economists, who expected an increase of 0.1% last month.

Housing produced mixed but mostly bad news that offered a note of concern for real estate enthusiasts. The National Association of Homebuilders (NAHB) Housing Market Index (HMI) fell to a mark of 42, from 44 the month before and against economists' expectations for improvement to 45. When this measure is under 50, it signifies that more homebuilders have a pessimistic view of the market than have an optimistic view. Meanwhile, Housing Starts data showed that permitting activity, which is forward looking, declined in its annual pace to 902K, from 939K the month before. The pace of housing starts actually increased, but the news about the forward looking permitting activity offered enough to worry about to keep housing stocks contained last week, illustrating its importance. See the SPDR Homebuilders (NYSEARCA:XHB) performance for reference.

Chart forSPDR S&P Homebuilders

Chart at Yahoo Finance

The Consumer Price Index (NYSEARCA:CPI) declined by 0.2% in March, reflecting softness in energy prices. When energy prices decline because of concern about demand, it's an indicator of economic issue. When increase in Core CPI, which excludes energy and food prices, slows as it did to +0.1% in March, it could be a deflationary issue, which is even more problematic with regard to economic demand.

The International Council of Shopping Centers (ICSC) report on same-store sales showed a 1.1% decrease week-to-week. Granted, this could be due to the weather or holidays, or even disruptive events like that which occurred in Boston, and should not be watched too closely. However, the year-to-year sales decrease, though it was slight, could be more meaningful. As we stand today, the 2.0% sales pace is barely keeping up with inflation, and so reflects a poor retail environment that should be proved out when retailers begin reporting their results later in the earnings season.

Weekly Initial Jobless Claims data has been volatile week-to-week of late, but the four-week moving average trend shows something is afoot. The four-week average of new unemployment benefits filers increased in the latest reporting period. If it should steadily approach the 400K level, it would start to raise new concerns about a labor market that is already weaker than the government estimates, by my estimation.

Net foreign demand for long-term U.S. securities waned because more Americans were sending money overseas in February than foreigners were investing in long-term instruments here. One month does not a trend make, and when including investments in short-term instruments, the story is different, so this is perhaps the weakest of the indicators. Still, if the U.S. market were as overwhelming a destination as some would have us believe, then capital would be overwhelmingly flooding it.

Perhaps the most powerful indication of economic softness of all is being found daily now in corporate earnings reports and warnings. Concerns about companies including McDonald's (NYSE:MCD), IBM, GE and others reporting issue last week were well noted by investors. In some cases, operational issue was found at home, and in others, it was found in international markets. Certainly Europe continues to weigh on multinational players, and growth was shown to be slower in China last week.

I've noted in many articles over the last several months that the U.S. economy seems to clearly be deteriorating. It seems the evidence is growing and could soon be too obvious to ignore, with at least 10 new indications of issue produced in just the last week.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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