The Independent Market Observer

Economic Risk Factor Update: November 2015

Posted by Brad McMillan, CFA®, CFP®

Find me on:

This entry was posted on Nov 6, 2015 3:11:12 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 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 end of the year, though, the economic forecast is better than it has been for the past several months. The slowdown appears to be waning, and growth is picking up again. The signal light is looking even greener.

The Service Sector

risk factor

Signal: Green light

Despite dropping for the past couple of months, this data point remains at healthy levels and this month rebounded to close at 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, 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. This morning’s surprisingly strong jobs figures compensate for much of the slowdown in the past several months—bringing the annual change up again.

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 decreases over the past couple of months, October’s very strong report moved the needle back up, 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)

risk factor 

Signal: Green light

Rates for the 10-year Treasury ticked up over the past month, as did 3-month rates, narrowing the spread slightly. Nonetheless, the spread between long-term and short-term rates remains at healthy levels. This metric has not changed despite the Federal Reserve’s possible rate hike, indicating that investors are still pricing in low policy rates and that rates remain stimulative.

Consumer Confidence: Annual Change

risk factor 

Signal: Green light

The rate of consumer confidence growth decreased slightly this month, as base confidence levels have risen, but it remains in positive territory and well above worry levels.

Conclusion: Nothing to worry about

All of the major signs continue to be positive, with the strong October employment and ISM Nonmanufacturing reports particular bright spots. The potential rise in interest rates appears to not be an area of concern going forward, as even with a rise, rates would remain stimulative. Lower oil prices and record vehicle sales also continue to bolster the economy, which remains well supported across the board.

risk factor

  Subscribe to the Independent Market Observer

Subscribe via Email

Crash-Test Investing

Hot Topics

New Call-to-action



see all



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 in an index.

The MSCI EAFE (Europe, Australia, Far East) Index 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.

One basis point (bp) is equal to 1/100th of 1 percent, or 0.01 percent.

The VIX (CBOE Volatility Index) measures the market’s expectation of 30-day volatility across a wide range of S&P 500 options.

The forward price-to-earnings (P/E) ratio divides the current share price of the index by its estimated future earnings.

Third-party links are provided to you as a courtesy. We make no representation as to the completeness or accuracy of information provided on 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.


Please review our Terms of Use

Commonwealth Financial Network®