Economic Risk Factor Update: November 2014

Posted by Brad McMillan, CFA, CAIA, MAI

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This entry was posted on Nov 3, 2014 1:25:00 PM

and tagged Economic Risk Factor Updates

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

Heading into November, the economic forecast remains good after a news-heavy October.

 The Service Sector

 risk_factor_1-1

Signal: Green light

Although it dropped slightly from last month, service sector data remains close to an eight-year high (and near its highest level since the financial crisis). Continued strength 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_2-1

Signal: Green light

Private employment growth year-on-year continues to increase, reaching its highest levels since 2012. With the annual figure, these 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_3-2

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. The strong September employment report came as a relief after August’s weaker number, and the signs are positive for a healthy October print. Total employment growth continues to be strong. 

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

 risk_factor_4-1

Signal: Green light

Rates ticked down significantly over the past month but then recovered for a relatively small decline overall. The spread between long-term rates and short-term rates remains at healthy levels. This metric hasn’t yet changed with the end of Federal Reserve bond-buying; as of right now, the markets don’t seem concerned.

Consumer Confidence: Annual Change

 risk_factor_5-2

Signal: Green light

Consumer confidence rose again this past month, bringing the absolute level to the highest point since the financial crisis and pushing the annual growth rate back up. Given the many uncertainties consumers have faced lately, this is a significant improvement.

Conclusion: Still Going Strong

All of the major signs continue to be positive—notably, the improvement in consumer confidence despite the challenges of the past month. All in all, economic growth remains well supported across the board. 

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