Conference Board Leading Economic Index
We believe leading indicators are extremely important, so it was nice to see the conference board’s leading economic index bounce in an upward direction and register a +.2%. That being said, it did miss expectations, and the prior month’s revision was downgraded from positive to negative territory.
Coincident to Lagging Index (Co/Lag)
The conference board also updated their coincident and lagging indicators, and the ratio of the coincident to lagging data (Co/Lag) is widely considered another leading series of data. Since the coincident numbers were flat while lagging economic indicators picked up, the Co/Lag crashed to its lowest level since the mid 1970’s. So much for feeling too positive about the economy when looking at this data point…
GDP-Our Best Guestimate for Q1/Q2
Right now U.S. economic data is as whippy and trendless as the financial markets, which is making a difficult forecasting exercise even more hazardous. Our current take is that growth in the U.S. is stuck in a very low growth zone, which has been oscillating from downright nasty to mediocre the last few years. Our forecast for 1st quarter GDP is anemic—somewhere in the range of zero to one and a half percent. That’s not good, but we do think there is a chance that data may reflexively bounce a bit back towards 2 percent in the second quarter due to stabilizing financial conditions, a lower U.S. dollar, and some regional surveys that bounced hard last month. Nevertheless, conviction is not very high in this forecast, given how volatile the current data has been.
Like many investors, we are hopeful that a trend will eventually establish and the cycle can find some normal footing. Until it does, investors will have to do their best to parse through the data carefully and avoid big mistakes while this economic vertigo persists.