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posted on 24 November 2016

October 2016 Philly Fed Coincident Index Shows Continuing Slowing Of Economic Rate of Growth

The year-over-year rate of growth of the US Coincident Index slowed relative to last month's revised level. A comparison of this US Coincident Index with the Aruoba-Diebold-Scotti business conditions index, Conference Board Coincident Index, ECRI's Coincident Index, and the Chicago Fed National Activity Index follows.

Analyst Opinion of the Current Status of the Coincident Indicators

The sad reality is that most of the economic indicators have moderate to significant backward revision - but this month it seems the rear view mirror says the USA economy is slowing. Out of this group of coincident indicators discussed in this post, only ECRI and the Aruoba-Diebold-Scotti business conditions index have no backward revision - and both have a good track record of seeing the economy accurately in almost real time.

For October, it appears the majority of indices show slowing or poor growth - and show that the economy is very weak but not recessionary.

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 However, trends are valid until they are no longer valid, making the trend lines on the coincident indicators a forward forecasting tool.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 October 2016. In the past month, the indexes increased in 39 states, decreased in five, and remained stable in six, for a one-month diffusion index of 68. Over the past three months, the indexes increased in 41 states, decreased in eight, and remained stable in one, for a three-month diffusion index of 66. 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 October 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 darker blue line shows the month-over-month change. The year-over-year trend is down.

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 the coincident indices are showing slowing or stable but weak growth: Nothing here is a surprise. Econintersect's analysis of the coincident indices is that:

  • The Philly Fed US Coincident index shows the annual rate of growth continues to slow.
  • The Aruoba-Diebold-Scotti business conditions shows poor business conditions.
  • The rate of growth of the Conference Board Coincident Index is stable with slow growth.
  • ECRi's Coincident Index's rate of growth marginally improved.
  • The CFNAI rate of growth is below the historical trend rate of growth (zero line) - and is showing a slowing economy.


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