“CRED” Data See Health in the Business Cycle But a Potentially Slowing Economy

By ClearRock Research March 15, 2019 Insights

March CRED Report

CRED

Figure A. CRED “Speedometer” on a scale from 0 to 100.

The ClearRock Economic Dashboard (“CRED”) decreased to 35.0 in March, its lowest reading since early 2016. Consumer confidence, housing permits, and certain business indicators were the key reasons for the decline this month.

“Hard” business data (new orders and industrial production) decreased and a tight labor market (lack of qualified workers) and rising wage costs persisted. Retail sales and housing permits led the decline across all consumer confidence indicators. Inflation remained stable at 2.1%.

The Fed kept its target rate unchanged at 2.5% and expects to be “patient” regarding future rate increases.  Our data tracking stock market valuations increased last month, indicating that the markets have entered a possible expensive territory, not reached since earlier last year. Even though certain aspects of the current business cycle seem healthy, CRED has dipped below 50 for just the third time in as many years, signaling that the economy showing signs of slowing. Abroad, EU economic sentiment remained effectively unchanged and Spanish/German sovereign spreads widened. Chinese manufacturing rose to the highest level since September, although it is still in a downward trend over the last two years.

CRED

Figure B. Trailing 12-Month CRED Readings. Source: ClearRock Research

About CRED

The ClearRock Economic Dashboard (“CRED”) is a proprietary financial tool we have built and refined over the past 10 years.  CRED is a monthly barometer designed to measure the strength of the global economy. It synthesizes twenty financial data points to produce a monthly diffusion index of economic health.  We represent the index using a “speedometer” with a scale of 0 to 100.

A reading of 50 is neutral, which indicates that the economy is growing at its long-term historical average. A reading below 50, signals that the economy is slowing, which may lead to a contractionary phase in the economic cycle. Conversely, when CRED gives us a reading above 50, the economy is growing faster than its historical trend rate, and is likely expanding.

We use this tool to answer a simple question: where are we within the current business cycle? Answering this question is a core part of our investment management process and is an important factor in driving our asset allocation decisions. We believe that getting the big picture right is key for achieving long-term portfolio growth and, most important, helping our clients reach their financial goals.

It is important to note however, that CRED is only one of the many resources that help our Investment Committee make more thoughtful decisions.  Our deep industry and investment experience, coupled with our network of external independent research sources, we believe has allowed us to build a sound, disciplined, and repeatable investment process. To learn more about our investment philosophy, please visit our website.

 

Disclosures

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this newsletter (article), will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for your portfolio. Due to various factors, including changing market conditions, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter (article) serves as the receipt of, or as a substitute for, personalized investment advice from ClearRock Capital LLC. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. A copy of our current written disclosure statement discussing our advisory services and fees is available for review upon request.

The material in this presentation is based on information from a variety of sources we consider reliable, but we do not represent that the information is accurate or complete. The material provided herein is for informational purposes only. Sources: Bloomberg, Federal Reserve

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ClearRock

Author ClearRock Research

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