A new long-leading US index

We have been watching the deterioration in the short leading indicators diverging from the story been told on our long-leading indicator (USLLGI) with some interest. It has always been puzzling (and concerning) how long leading data was telling a different story to the short leading data. The lack of long-leading data pointing to any sort of future economic weakness led us to research further available economic data and sources to discover any additional, timely long-leading components that reliably predicted recession over multiple decades.

The 3-month research effort yielded positive results and to this end we are comprehensively overhauling our long-leading index as follows:

  1. We have doubled the number of inputs, going from 8 indicators to 16 indicators
  2. We have eliminated all 3 quarterly indicators, leaving only monthly data that does not rely on forecasts
  3. We have implemented superior index construction techniques such as Principle Component Analysis.

The components of the new index are as follows:

01.Labor Market Composite (19 indicators)
02.Housing Market Composite (6 indicators)
03.Enhanced Yield Curve (EYC)
04.Money Supply Aggregate
05.Stock Market
06.Margin Debt
07.Treasury/Corporate Bond market
08.Inventories & Sales
09.Sales of heavy duty trucks
10.Manufacturing : Durable Goods
11.Manufacturing : Weekly Overtime hours
12.Manufacturing : Business Activity Changes
13.Consumer Sentiment
14.Measurement of tightening loan standards
15.Freight Shipments & Expenditures
16.EYC%-CPI% +Unemployment rate%
17. Credit Market Index (35 indicators)
18. Percentage of US States with rising unemployment
19.Initial and Continuing Claims
20.Lumber & Construction materials sales
21. Mortgage Backed Securities held by banks

The far broader, more timely index offers much more comfort that nothing will be missed.

We will be changing the monthly USLLGI PDF report in the ensuing months, but in the meanwhile, this is what the new model (in its current form, consider this a pre-release) is showing up to and including January 2016:

2016-03-03_1334

About Dwaine Van Vuuren

Dwaine has a Bachelor of Science honors degree and is a full-time trader and investor. His passion for numbers and keen research & analytic ability has helped grow RecessionALERT into a company used by hundreds of hedge funds, brokerage firms and financial advisers around the world.

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