The year-over-year rate of growth of various coincident indices improved relative to last month – but mostly remain in contraction. It should be obvious the economy entered a recession in March 2020 but likely exited in May or June. A recession ends when the economy starts improving.
Analyst Opinion of the Current Status of the Coincident Indicators
The reality is that most of the economic indicators have moderate to significant backward revision – and this month they are generally showing improved growth. Out of this group of coincident indicators discussed in this post, only ECRI, The New York Fed’s Weekly Economic Indicator, and the Aruoba-Diebold-Scotti business conditions index have no backward revision – and are designed to track the economy in real-time.
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 However, trends are valid until they are no longer valid, making the trend lines on the coincident indicators a forward forecasting tool.
Note that the indices discussed in this post are the last release of that index,
Generally, the coincident indices are showing modest growth. Econintersect‘s analysis of the coincident indices is that:
- The Philly Fed US Coincident index year-over-year rate of growth improved but remains in contraction.
- The Aruoba-Diebold-Scotti business conditions show improving conditions – and the index is in expansion.
- The New York Fed’s Weekly Economic Indicator shows improvement but remains in contraction.
- The rate of growth of the Conference Board Coincident Index improved but remains in contraction.
- ECRI’s Coincident Index’s rate of growth shows improvement but remains in contraction.
- The CFNAI rate of growth improved and is now in expansion.
Excerpt from Philly Fed Report for the United States Coincident Index
[click graph below to enlarge]The Federal Reserve Bank of Philadelphia has released the coincident indexes for the 50 states for July 2020. Over the past three months, the indexes increased in 45 states and decreased in five states, for a three-month diffusion index of 80. Additionally, in the past month, the indexes increased in 37 states, decreased in 11 states, and remained stable in two, for a one-month diffusion index of 52. 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 increased 5.4 percent over the past three months and 0.8 percent in July.
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In the graph below, the blue line shows the year-over-year growth rate of the US Coincident Index, while the red line shows the month-over-month change.
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.
New York Fed’s Weekly Economic Index (WEI)
From the New York Fed:
The WEI is an index of real economic activity using timely and relevant high-frequency data. It represents the common component of ten different daily and weekly series covering consumer behavior, the labor market, and production. The WEI is scaled to the four-quarter GDP growth rate; for example, if the WEI reads -2 percent and the current level of the WEI persists for an entire quarter, we would expect, on average, GDP that quarter to be 2 percent lower than a year previously.
The Weekly Economic Index (WEI) provides a signal of the state of the U.S. economy based on data available at a daily or weekly frequency. It represents the common component of ten different daily and weekly series covering consumer behavior, the labor market, and production.
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)
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