Economic Risk Factor Update: March 2015

Posted by Brad McMillan, CFA, CAIA, MAI

Find me on:

This entry was posted on Mar 10, 2015 1:47:00 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 continue into the year, though, the economic forecast remains promising.

The Service Sector

 riskfactor_1-1

Signal: Green light

After dropping two months ago, this data point rebounded a bit 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

 riskfactor_2-1

Signal: Green light

Private employment growth year-on-year continued to increase, moving up to the highest level 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

 riskfactor_3-1

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 severe winter weather, employment remains at a monthly growth level consistent with the mid-2000s (unlike what we saw in early 2014). Total employment growth continues to be healthy.

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

 riskfactor_4-1

Signal: Green light

Rates for the 10-year Treasury ticked up 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 significantly despite the start of Japanese and European central bank quantitative easing programs, which have created demand from international buyers.

Consumer Confidence: Annual Change

 riskfactor_5-1

Signal: Green light

Consumer confidence dropped this month but remains well above levels of a year ago. Should the drop continue, this metric will warrant further examination, but for the moment, the signal remains strong.

Conclusion: Ongoing Strength

All of the major signs continue to be positive, with strong employment growth a particular bright spot.

The increase in interest rates appears largely the result of speculation about the Federal Reserve’s pending decision to raise rates, but the effect seems to have been moderated by international demand. Whatever the reason, however, rates have not yet risen to a level that threatens U.S. economic growth. Lower oil prices also continue to bolster the economy, which remains well supported across the board.

ServiceSectorLight

                        Subscribe to the Independent Market Observer            

Subscribe via E-mail

New call-to-action
Crash-Test Investing
Commonwealth Independent Advisor

Hot Topics

Have a Question?

New Call-to-action

Conversations

Archives

see all

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®