PrintOnce 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
Signal: Green light
Despite dropping slightly last month, this data point 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
Signal: Green light
Private employment growth year-on-year continued to increase, remaining close to its highest point since 2012. 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
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 a slight decrease after an exceptionally strong November, the December report was positive, and employment 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)
Signal: Green light
Rates for the 10-year Treasury ticked down slightly over the past month, while 3-month rates remained relatively stable, narrowing the spread. Nonetheless, the spread between long-term and short-term rates remains at healthy levels. This metric has not changed despite the end of Federal Reserve bond-buying, which seems to be due at least in part to demand from international buyers.
Consumer Confidence: Annual Change
Signal: Green light
Consumer confidence increased slightly this month and remains at one of the highest points since the financial crisis, well above levels of a year ago.
Conclusion: Nothing to Worry About
All of the major signs continue to be positive, with strong consumer confidence a particular bright spot. The decline in interest rates 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 the economy, which remains well supported across the board.
