Today, I’ll be using the long-leading, leading, and coincidental economic indicator formulation in writing about the current economic environment. This is based on research done by Arthur Burns and Geoffrey Moore of the Federal Reserve.
The long-leading indicators main purpose is to see if there is any upcoming economic stress, which usually manifests in the financial markets (banking, commercial paper, short-term funding etc...).
The above chart shows that various financial stress indicators formulated by several Fed banks are very low. In short, things are good right now.
Now, let’s turn to the leading indicators:
The treasury curve is positively sloped (left) while the stock market is in a rally.
New 1-unit building permits (left) are above their pre-pandemic levels while weekly earnings of non-supervisory employees (right) have rebounded.
New orders for consumer durable goods (left) spiked upwards quickly after the recession but have since moderated. Still, they’re at good levels. New orders for non-defense capital goods are off the charts.
Finally, here are the key coincidental numbers.
Total payroll employment (left) has regained about 80% of its pandemic losses. Personal income less transfer payments (right) is at a 5-year high.
Industrial production (left) has returned to pre-pandemic levels while retail sales (right) have spiked higher.
Overall, the data is very positive.