CRED signs point to more runway for the current business cycle

By ClearRock Research September 15, 2018 Insights

AUGUST – CRED gave us another reading of 65.0, unrevised from the prior month as business indicators and consumer confidence continued to show strength while inflation risks and valuation remained high.

CRED Website

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

The CFNAI, a gauge of overall economic activity, continues to motor along since a weak June reading. Hard business data (New Orders, Industrial Production) continues to surge and, coupled with a strong labor market and rising compensation costs, supports the resilience in business indicators across the board. Consumer confidence for August rose at the fastest pace since February, bolstered by continued stability in retail sales and housing permits. Signs point to more runway for the current business cycle. Eurozone economic sentiment has continued its slight year-to-date downward trend and US valuations have become more expensive. Those, in addition to a strengthening US Dollar, creeping inflation and continued fret over trade wars, isn’t yet enough to propel the current cycle toward economic contraction.

About The ClearRock Economic Dashboard (“CRED”) – 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 helps 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.

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