January 2019 Coincident Indices Generally Show Weak Growth

The year-over-year rate of growth relative to the previous month of the US Coincident Index was little changed. A comparison of this US Coincident Index to other coincident indices follows.

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 slowing growth. 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.

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 However, trends are valid until they are no longer valid, making the trend lines on the coincident indicators a forward forecasting tool.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 January 2019. Over the past three months, the indexes increased in 44 states, decreased in one state, and remained stable in five, for a three-month diffusion index of 86. In the past month, the indexes increased in 38 states, decreased in seven states, and remained stable in five, for a one-month diffusion index of 62. 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 0.6 percent over the past three months and 0.2 percent in January

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. 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):

ECRI's USCI (U.S. Coincident Index):

Chicago Fed National Activity Index (CFNAI)

Summary

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 marginally improved - but the index remains above average for values seen over the last two years.

• The Aruoba-Diebold-Scotti business conditions show above average business conditions.

• The rate of growth of the Conference Board Coincident Index is stable with little change in the rate of growth.

• ECRi's Coincident Index's rate of growth marginally declined - and remains below average for the values seen in the last 12 months.

• The CFNAI rate of growth is below the historical trend rate of growth (zero-line) - and its growth rate is slowing.