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posted on 24 October 2015

September 2015 Philly Fed Coincident Index Continues Slowing Rate of Year-over-Year Growth Trend

The year-over-year rate of growth of the US Coincident Index again declined marginally. A comparison of US Coincident Index, Aruoba-Diebold-Scotti business conditions index, Conference Board.

Economic indicators that coincide with economic movements are coincident indicators. Coincident indicators by definition do not provide a forward economic view. However, trends are valid until they are no longer valid, making the trend lines on the coincident indicators a forward forecasting tool.

Excerpt from Philly Fed Report for the United States Coincident Index

The Federal Reserve Bank of Philadelphia has released the coincident indexes for the 50 states for September 2015. In
the past month, the indexes increased in 41 states, decreased in six, and remained stable in three, for a one-month
diffusion index of 70. Over the past three months, the indexes increased in 43 states, decreased in six, and remained
stable in one, for a three-month diffusion index of 74. For comparison purposes, the Philadelphia Fed has also developed
a similar coincident index for the entire United States. The Philadelphia Fed's U.S. index rose 0.2 percent in September
and 0.7 percent over the past three months.

[click graph below to enlarge]

z philly coincident.PNG

In the graph below, the blue line shows the year-over-year growth rate of the US Concident Index, while the red line shows the month-over-month change. The year-over-year trend is down whilst the month-over-month is up.

The Philly Fed produces this real time coincident indictor report based on six underlying indicators:

  • Weekly initial jobless claims
  • Monthly payroll employment
  • Industrial production
  • Personal income less transfer payments
  • Manufacturing and trade sales
  • Quarterly real GDP

Aruoba-Diebold-Scotti Business Conditions Index

Per the Philly Fed:

The Aruoba-Diebold-Scotti business conditions index is designed to track real business conditions at high frequency. Its underlying (seasonally adjusted) economic indicators (weekly initial jobless claims; monthly payroll employment, industrial production, personal income less transfer payments, manufacturing and trade sales; and quarterly real GDP) blend high- and low-frequency information and stock and flow data. Both the ADS index and this web page are updated as data on the index's underlying components are released.

The average value of the ADS index is zero. Progressively bigger positive values indicate progressively better-than-average conditions, whereas progressively more negative values indicate progressively worse-than-average conditions. The ADS index may be used to compare business conditions at different times. A value of -3.0, for example, would indicate business conditions significantly worse than at any time in either the 1990-91 or the 2001 recession, during which the ADS index never dropped below -2.0.

The vertical lines on the figure provide information as to which indicators are available for which dates. For dates to the left of the left line, the ADS index is based on observed data for all six underlying indicators. For dates between the left and right lines, the ADS index is based on at least two monthly indicators (typically employment and industrial production) and initial jobless claims. For dates to the right of the right line, the ADS index is based on initial jobless claims and possibly one monthly indicator.

Conference Board's Coincident Index (red line):

z conference.png

ECRI's USCI (U.S. Coincident Index):

z ecri_coin.png

Chicago Fed National Activity Index (CFNAI)

Summary

Generally all coincident indices are showing slowing growth: Econintersect's analysis of the coincident indices is that:

  • You cannot take most of these coincident indices to the bank - as they are subject to backward revision.
  • The Philly Fed US Coincident index shows the annual rate of growth is decelerating.
  • The Aruoba-Diebold-Scotti business conditions shows below normal conditions.
  • The rate of growth of the Conference Board Coincident Index is decelerating.
  • ECRi's Coincident Index's rate of growth is decelerating.
  • On the above graph, the CFNAI rate of growth is below the historical trend rate of growth (zero line) - but still far from recession territory (red line). One could say that the rate of growth is marginally decelerating.

Steven Hansen



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