U.S future economic outlook improves

The RecessionALERT monthly U.S Leading Growth Index (USMLI) is an index that attempts to capture  future (6-9 months) U.S economic growth. The index has been constructed since 1960, but this report only displays data from 2000 onwards to capture the last two recessions. The USMLI consist of  10 sub-components that are in turn constructed from over 100 discreet monthly and weekly leading  time-series data that capture the essence of U.S future economic growth from varying aspects, namely Manufacturing , Inventories & Sales , the Housing, Lumber & Construction markets , Freight shipments & revenues , broad Employment, the Stock market & associated margin debt, the Treasury & Corporate Bond markets, the broad Credit Markets, various Sentiment Surveys  and percentage of 50 individual State Leading indexes showing growth.

All data-series are standardized (mean zero, variance 1) and then constructed to display from -100 to +100. Each chart below represents growth and thus when the data drops below zero the implication is that the data in question is flagging recession ahead. To track the number of  individual indicators of the USMLI that are flagging recession, we also construct a Diffusion Index which rises every time a discrete time-series component drops below zero. The Diffusion Index represents, from 0 to 1, the percentage of components flagging recession . When the Diffusion equals or exceeds 0.6 (more than 60% of the components are in recession) then you have a very high degree of certainty that economic recession is 6-9 months away.  The USMLI posted a modest rise in November, after 5 months of declines, pointing to an improved outlook for economic growth.

USMLI_NOV13

For now, the danger areas appear to be the all-business Inventory-to-Sales composite, the Treasuries & Corporate Bonds composite and the Sentiment composite. The Freight revenues & shipments composite was looking uncomfortably vulnerable in the past few months but appears to be showing signs of bottoming out, whilst the Housing & Construction composite continues to show signs of a slowdown in growth.

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. A gifted educator, he’ll have you trading and investing with confidence & discipline.

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