Economic Risk Factor Update: April 2015

Posted by Brad McMillan, CFA, CAIA, MAI

This entry was posted on Apr 2, 2015 3:31:00 PM

and tagged Economic Risk Factor Updates

Leave a comment

Once again, it’s time for our monthly update on risk factors that have proven to be good indicators of economic trouble ahead. As expected, the data hasn’t changed much from last month—it remains positive in almost all areas and has continued to improve in many cases—but it’s still important to keep an eye on things.

As we move into the year, though, the economic forecast remains bright.

The Service Sector

risk factor

Signal: Green light

This indicator ticked back up after a one-month drop and remains close to its highest level since before the financial crisis. Continued strength in the service sector is consistent with business confidence; as a representative sample of the largest sector of business, this is an important leading indicator.

Private Employment: Annual Change

risk factor

Signal: Green light

Private employment growth year-on-year continued to increase and is now at the highest point since 1998. Because this is an annual figure, the changes are slower and smaller than those we see in more frequently reported data, but the trend continues to be in the right direction.

Private Employment: Monthly Change

risk factor

Signal: Green light

These are the same numbers as in the previous chart, but on a month-to-month basis, which can provide a better short-term signal. Despite considerable variability, employment growth on a monthly basis remains at a growth level consistent with the mid-2000s. Total employment growth continues to be healthy.

Yield Curve (10-Year Minus 3-Month Treasury Rates)

risk factor

Signal: Green light

Rates for the 10-year Treasury ticked up slightly over the past month, while 3-month rates stayed relatively stable, widening the spread. Nonetheless, the spread between long-term and short-term rates remains at healthy levels. This metric has not changed despite speculation over pending rate increases by the Federal Reserve, which seems to be due, at least in part, to demand from international buyers.

Consumer Confidence: Annual Change

risk factor

Signal: Green light

Consumer confidence increased slightly this month, after a decline in the previous month, but remains at one of the highest points since the financial crisis—and well above levels of a year ago. Although year-on-year growth has declined, the positive trend remains solid.

Conclusion: Nothing to Worry About

All of the major signs continue to be positive, with employment growth a particular bright spot. The stability in interest rate spreads appears to be due largely to international demand; whatever the reason, however, it has contributed to U.S. economic growth. Lower oil prices also continue to bolster both consumer confidence and the economy as a whole.

risk factor 

                        Subscribe to the Independent Market Observer            
5 Ways to Affiliate
Commonwealth Independent Advisor

Hot Topics

Have a Question?

New Call-to-action

Conversations

Subscribe via E-mail

Subscribe

Disclosure

The information on this website is intended for informational/educational purposes only and should not be construed as investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Please contact your financial professional for more information specific to your situation.

Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results. Diversification does not assure a profit or protect against loss in declining markets.

The S&P 500 Index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. All indices are unmanaged and investors cannot invest directly into an index.

The MSCI EAFE Index (Europe, Australasia, Far East) is a free float‐adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the U.S. and Canada. The MSCI EAFE Index consists of 21 developed market country indices.  

Third party links are provided to you as a courtesy. We make no representation as to the completeness or accuracy of information provided at these websites. Information on such sites, including third party links contained within, should not be construed as an endorsement or adoption by Commonwealth of any kind. You should consult with a financial advisor regarding your specific situation.

Member FINRASIPC

Please review our Terms of Use

Commonwealth Financial Network®