This week was loaded with data releases showing a mixed economic picture. One leading index which is not well known has fallen into contraction.

The headlines of this release stated:

The Chemical Activity Barometer (CAB) rose 0.1 percent in March on a three-month moving average (3MMA) basis, the first gain in five months.

It was the second sentence which stated the important content:

On a year-over-year (Y/Y) basis, the barometer is down 0.3 percent (3MMA).

According to the American Chemistry Council who produces the Chemical Activity Barometer:

The Chemical Activity Barometer is a leading economic indicator derived from a composite index of chemical industry activity. The chemical industry has been found to consistently lead the U.S. economy's business cycle given its early position in the supply chain, and this barometer can be used to determine turning points and likely trends in the wider economy. Month-to-month movements can be volatile so a three-month moving average of the barometer is provided. This provides a more consistent and illustrative picture of national economic trends.

Applying the CAB back to 1912, it has been shown to provide a lead of two to fourteen months, with an average lead of eight months at cycle peaks as determined by the National Bureau of Economic Research. The median lead was also eight months. At business cycle troughs, the CAB leads by one to seven months, with an average lead of four months. The median lead was three months. The CAB is rebased to the average lead (in months) of an average 100 in the base year (the year 2012 was used) of a reference time series. The latter is the Federal Reserve's Industrial Production Index.

As this is a relatively new leading index, our biggest concern is backward revision (which degrades real-time accuracy). Thankfully (providently?) backward revisions have been relatively small to date.

No single economic forecasting index has proven to have all the answers because the reason the economy recesses is a combination of changing dynamics.

Economic Releases This Past Week

The Econintersect Economic Index for March 2019 insignificantly declined and remains below territory associated with normal expansions. The question remains whether this downward trend will continue. Note, our index is built on data sets which were not affected by the government shutdown - and it is most likely that other recent economic forecasts you have seen fudged the missing data. A forecast with fudged data is simply a guesstimate.

The following table summarizes the more significant economic releases this past week. For more detailed analysis - please visit our landing page which provides links to our complete analyses.

Other Economic Release Summary For This Week

ReleasePotential Economic ImpactComment
February Median Incomeslower income growth = slower economic growthNew data from the monthly Current Population Survey (CPS) indicate that median annual household income was $63,378 in February 2019.

After adjusting for price changes, median household income for February of this year was only 3.9 percent above the median of $61,004 for January 2000, the beginning of this statistical series

Median household income for February 2019 was 1.9 percent higher than February 2018, when the median stood at $62,185.

March Chemical Activity Monitorshows slowing economy

The Chemical Activity Barometer (CAB) rose 0.1 percent in March on a three-month moving average (3MMA) basis, the first gain in five months.

On a year-over-year (Y/Y) basis, the barometer is down 0.3 percent (3MMA).

March Chicago Fed National Activity Index

confirms a slowing economy

This index confirms what I have been saying for the last several months - the economy has slowed.

The single month index which is not used for economic forecasting, and unfortunately is what the CFNAI headlines. Economic predictions are based on the 3-month moving average. The single month index historically is very noisy and the 3-month moving average would be the way to view this index in any event.

The previous months' data were revised both up and down with the moving average for last month ending up unchanged.

January Case-Shiller Home Pricesn/a

The non-seasonally adjusted S and P CoreLogic Case-Shiller home price index (20 cities) year-over-year rate of home price growth slowed from 4.2 % last month to 3.6 %. The index authors stated "In 16 of the 20 cities tracked, price gains were smaller in January 2019 than in January 2018".

February Trade Dataimports are weak

Trade data headlines show the trade balance improved from last month - and the rolling averages for exports and imports declined. The data in this series wobbles and the 3-month rolling averages are the best way to look at this series. The 3-month averages slowed for both exports and imports. However, for this month - exports improved and exports declined - hence an improving trade balance.

  • Imports of goods were reported down month-over-month - import goods growth has positive implications historically to the economy. Econintersectanalysis shows unadjusted goods (not including services) growth decelerated 2.9 % month-over-month (unadjusted data) - up 0.5 % year-over-year (up 2.1 % year-over-year inflation adjusted). The rate of growth 3-month trend is decelerating (rate of change of growth declined).
  • Exports of goods were reported up month-over-month, and Econintersectanalysis shows unadjusted goods exports growth accelerated (not including services) 5.3 % month-over-month - up 3.8 % year-over-year (up 4.0 % year-over-year inflation adjusted). The 3-month rate of growth trend is slowing.

The third estimate 4Q2018 GDPa slowing economy at year-end?

The third estimate of fourth-quarter 2018 Real Gross Domestic Product (GDP) was 2.2 % (down from the second estimates 2.6 %).

Seems all components of GDP were revised downward in this third estimate - the likely cause was the government shutdown.

I am not a fan of the quarter-over-quarter exaggerated method of measuring GDP.

Headline GDP is calculated by annualizing one quarter's data against the previous quarter's data. A better method would be to look at growth compared to the same quarter one year ago. For 4Q2018, the year-over-year growth is now 3.0 % - unchanged from 3Q2018's 3.0 % year-over-year.

February Residential Buildingdefinitely not showing an expanding economyThe headline residential building permits slowed and construction completions improved relative to last month. But we keep our eyes on the rolling averages which were mixed.

The backward revisions this month were significant, especially for construction completions. It is always difficult to understand the trends as the backward revisions continue to reverse trends month-to-month. The nature of this industry normally has large variations from month-to-month (mostly due to weather) so the rolling averages are the best way to view this series.

In summary, the rolling averages say this sector is contracting.

We consider this report no better than last month - but because of all the backward revisions, it is hard to understand if this really is true.

February Pending Home Salesn/a

The NAR reported Pending home sales index increased 1.0 % month-over-month and down 4.9 % year-over-year (originally reported down 2.3 % last month).

Econintersect's evaluation using unadjusted data:

  • the index growth rate decelerated 1.7 % month-over-monthand down 5.0 % year-over-year.
  • The current trend (using 3-month rolling averages) is accelerating but in contraction.
  • Extrapolating the pending home sales unadjusted data to project March 2019 existing home sales would be down 7.1 % year-over-year for existing home sales.

January and February Personal Income and Expendituresincomplete data

The BEA still has not caught up from the government shutdown, and again we have an incomplete picture. Overall there is little change from what we knew about income and expenditures.

Consumer income growth year-over-year is much greater than the spending growth year-over-year.

Savings growth remained strong.

The real issue with personal income and expenditures is that it jumps around - and one cannot take any single month as fixed or gospel.

The following graph is Seasonally and Inflation Adjusted Expenditure Per Capita

February New Home Salesimprovement

The headlines say new home sales significantly improved and has returned to expansion. Median and average sales prices were little changed. This month the backward revisions were significantly downward. Because of weather and other factors, the rolling averages are the way to view this series. The rolling averages improved but remain in contraction.

Surveysmixed

Dallas Fed Manufacturing - This survey remains in positive territory with subindices new orders again declining and unfilled orders marginally declining with both in expansion. Even though there was a marginal improvement in the general index, this report should be considered somewhat worse than last month because of the decline of the key subindices.

Richmond Fed Manufacturing - The important Richmond Fed subcategories growth declined and backlog remains in contraction. This survey was weak compared to last month.

Kansas City Manufacturing - Kansas City Fed manufacturing has been one of the more stable districts and their index even though improving is below the range seen in the last 12 months. Note that the key internals improved with new orders in expansion and backlog returning also to expansion. This is a much better report than last month.

Chicago PMI - March 2019 Chicago Purchasing Managers Barometer Q1 Average Lowest in Two Years. The Chicago Business Barometer declined after last month's improvement.

Conference Board Consumer Confidence - Consumer confidence had been on a multi-year upswing. The current volatility is showing uncertainty by consumers. Certainly, consumer confidence is worse than last month.

Michigan Consumer Sentiment - The final University of Michigan Consumer Sentiment for March came in at 98,4 - down from the preliminary of 98.7 - and up from the February final of 93.8.

Weekly Rail CountsDefinitely not positive newsRail so far in 2019 has changed from a reflection of a strong economic engine to contraction. Currently, not only are the economic intuitive components of rail in contraction, but the year-to-date has slipped into contraction.

This week the data was mixed but little showing an improving economy - and, there is little to indicate that a recession is waiting in the wings.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of NASDAQ, Inc.