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Charts Of the Day: The Economic Recovery Story

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    January 22, 2013

    The market has been rallying over the last few weeks as the bulls have definitely taken charge in the New Year.  Most of the recent analysis has pointed to signs of an improving economy and stronger employment as the driving force behind the advance.  My view has clearly been that it has been the impact of the Fed’s liquidity injections pushing asset prices higher.

    The charts of the day show two different aspects of the current economic environment from output to employment.

    The first chart is my economic output composite index.  This index is comprised of the Chicago Fed National Activity Report, ISM Composite Index, several Fed Manufacturing Regional Surveys, Chicago PMI and the NFIB small business survey.  This is a very broad economic composite index covering the entire country.


    While this index has ticked up slightly post the impact of Hurricane Sandy, as we said was likely to happen, the index remains mired at levels normally associated with slower economic growth.  The recent drags in consumer confidence and slower manufacturing reports in recent weeks continue to point towards a very sluggish economic environment currently.

    The second chart of the day is the STA Employment Composite Index.  This indexed is comprised of the employment components of the major surveys utilized in the economic output index.


    While employment numbers have been improving mildly over the last couple of months, mostly due to seasonal hires for the holiday shopping season, real full time employment has waned.  To see how this index relates to actual unemployment I have overlaid the index in the next chart with unemployment claims (inverted rhs).


    As you will see downturns in the employment index, not surprisingly, leads changes to unemployment claims.  Currently, this chart suggests that aside from seasonal adjustments and anomalies we should begin seeing an increase in claims in the months ahead.

    There is one caveat here.  Last winter was the warmest winter on record in 65 years which skewed much of the seasonal data by allowing work to continue when normally workers would have been shut in due to inclement weather.  We are seeing the exact same anomalies occur this year as the winter is current the warmest in the last 55 years combined, and when combined with lower energy prices, is giving a temporary boost to incomes.  The skews to seasonal adjustments will also boost economic reports to seem better than they actually are.   As we witnessed in 2012 – when the seasonal adjustments come back into alignment in the spring the drop off in reported economic activity will be fairly severe.

    Is the recent rally being driven by expectations of a strong economy ahead or is it just the continue chase of a stimulus fueld asset prices?  That is up for you to decide.  For me the evidence seems pretty clear that the economy remains very weak.  Of course, if the economy was truly improving we would have no need for monthly injections of $85 billion…would we?

    Images: Flickr (licence attribution)

    About The Author

    Lance Roberts – Host of Streettalk Live

    lance robertsAfter having been in the investing world for more than 25 years from private banking and investment management to private and venture capital; Lance has pretty much “been there and done that” at one point or another. His common sense approach has appealed to audiences for over a decade and continues to grow each and every week.

    Lance is also the Chief Editor of the X-Report, a weekly subscriber based-newsletter that is distributed nationwide. The newsletter covers economic, political and market topics as they relate to the management portfolios. A daily financial blog, audio and video’s also keep members informed of the day’s events and how it impacts your money.

    Lance’s investment strategies and knowledge have been featured on Fox 26, CNBC, Fox Business News and Fox News. He has been quoted by a litany of publications from the Wall Street Journal, Reuters, The Washington Post all the way to TheStreet.com as well as on several of the nation’s biggest financial blogs such as the Pragmatic Capitalist, Zero Hedge and Seeking Alpha.