Today’s updates on initial jobless claims and the Chicago Fed National Activity Index bring encouraging news for the US economy as the nation prepares to celebrate the Thanksgiving holiday. New filings for jobless benefits dropped again last week, falling to the lowest level since late-September. Meanwhile, the three-month average of the Chicago Fed National Activity Index (CFNAI-MA3) inched ahead in October, reaching the highest level in eight months. Taken together, these two numbers bring a slightly stronger positive aura to the US economic outlook. It’s still premature to argue that growth overall is set to accelerate, but the data du jour suggest that it’s not getting any easier to be a pessimist when it comes to big-picture macro analysis.
Is The Latest Rise In Housing Permits A Sign Of Things To Come?
Yesterday’s surprisingly strong update on newly issued housing permits is a convincing signal for expecting that the residential real estate market will continue to grow in the near term. The double-shot releases of September and October data for permits beat expectations by a healthy margin. Last month’s number was especially strong, with permits rising to a 5-year high. The release of the hard data on housing starts, which usually accompanies the permit numbers, has been postponed until Dec. 16. But since permits and starts tend to track one another through time, yesterday’s upbeat news suggests that it’s likely that the triple play of September, October and November starts data that we’ll see next month will tell an encouraging tale.
Chicago Fed Nat’l Activity Index: October 2013 Preview
The three-month average of the Chicago Fed National Activity Index (CFNAI) is expected to increase slightly to 0.04 in tomorrow’s update for October (scheduled for release on November 27), according to The Capital Spectator’s average econometric forecast. In the previous release for September, the three-month average was estimated at -0.03. Values below -0.70 indicate an “increasing likelihood” that a recession has started, according to guidelines from the Chicago Fed. Based on today’s estimate, CFNAI’s three-month average is projected to remain at a level that’s historically associated with economic expansion and at a marginally higher-than-average trend rate.
Mr. Market’s Asset Allocation Is Still Tough To Beat
The last five years have been anything but typical for financial markets, primarily because macroeconomic conditions around the world have been conspicuously abnormal. From heightened uncertainty about economic growth to extraordinary monetary policies, there’s no shortage of reasons to argue that much has changed since the world flirted with meltdown in late-2008. Five years after looking into the abyss, and living to tell the tale, it’s reasonable to ask: Has recent history helped or hindered our efforts to design and manage multi-asset class portfolios?
US Economic Profile | 11.25.13
The US economy has weathered some turbulence in recent months, including a government shutdown, higher interest rates, and a downturn in the mood among consumers. A subjective interpretation of these and other events suggests trouble for the business cycle, but for the moment that’s still assuming facts not in evidence. Macro risk remains low overall, based on measuring the broad trend via 14 economic and financial indicators. The Economic Trend (ETI) and Momentum indexes (EMI) continue to hover at levels that are well above their respective danger zones—levels that imply that the risk of a new recession was low through October.
Book Bits | 11.23.13
● Fortune Tellers: The Story of America’s First Economic Forecasters
By Walter A. Friedman
Summary via publisher, Princeton University Press
The period leading up to the Great Depression witnessed the rise of the economic forecasters, pioneers who sought to use the tools of science to predict the future, with the aim of profiting from their forecasts. This book chronicles the lives and careers of the men who defined this first wave of economic fortune tellers, men such as Roger Babson, Irving Fisher, John Moody, C. J. Bullock, and Warren Persons. They competed to sell their distinctive methods of prediction to investors and businesses, and thrived in the boom years that followed World War I. Yet, almost to a man, they failed to predict the devastating crash of 1929.
Boxplot Performance Analysis… Now Available In Weekly Doses
Starting with the next issue of the newsletter, The ETF Asset Class Performance Review will feature boxplots that summarize performance data for the 14 categories of asset classes that are sliced and diced each week. I briefly discussed boxplots earlier this month as a tool for “cutting through the market noise.” The main attraction is the ability to quickly summarize rolling performance data across a range of asset classes (or markets within an asset class) in search of insight on portfolio rebalancing decisions.
Macro-Markets Risk Index: 14.0% | 11.22.2013
The US economic trend continues to rebound in November, based on a markets-based profile of macro conditions. The Macro-Markets Risk Index (MMRI) closed at 14.0% on Thursday, Nov. 21. MMRI’s revival this month suggests that business cycle risk remains low. The current 14.0% value is twice as high as the lowest reading for the year to date—7.5% posted in mid-September—and comfortably above the 0% danger zone. If MMRI falls under 0%, that would be a sign that recession risk is elevated. By comparison, readings above 0% imply a bias for economic growth.
The Decline In Jobless Claims Accelerates
New filings for unemployment benefits fell last week, dropping the most since early September. Is that a sign that the labor market will grow at faster rate? Maybe, although we’ll know more if we see claims drop further in the weeks ahead. As for today’s update, the fact that the trend in new claims is again drifting lower is a positive sign, and one that may develop into a stronger tailwind for raising the growth rate for payrolls.
Rebalancing “Mistakes”
Paul Merriman concludes that “rebalancing could be a huge mistake.” Perhaps, although it could also turn out to be a huge benefit. Then again, it’s more likely that rebalancing’s effects will fall somewhere between those two extremes for most portfolios. In any case, Merriman’s focus is sensible, even if his conclusion is extreme. You just can’t spend too much time thinking about rebalancing. Even if you decide to shun it completely, which Merriman comes close to advocating for equity strategies, your rebalancing choices are likely to be critical factors for driving portfolio results through time.