U.S. Economic Profile Looks Encouraging
James Picerno | Mar 18, 2013 07:46AM ET
The future is hazy for the US economy, perhaps more so than usual, but the recent past is relatively clear and encouraging. A broad set of economic and financial indicators--defined by the Economic Trend Index (ETI) and the Economic Momentum (EMI) Index--continues to signal growth. In addition, an econometric projection of the indicators suggests that a relatively upbeat profile for the US economy is likely to roll on for the immediate future.
Here's how the individual indicators stack up in recent history to date:
Analyzing the numbers above through the lens of a diffusion index (ETI), and measuring the median monthly changes (EMI), shows that recession risk remains low, according to the current data set. The danger zone for ETI is 50% and 0% for EMI—levels that equate with recessions over the past 40-plus years. In both cases, however, the current readings for these indices are at comfortable margins over their respective danger zones, based on the near-complete profiles for January and February.
Translating ETI's values into recession-risk probabilities via a ARIMA ) to estimate the missing data points suggests that ETI will remain at levels associated with growth for the immediate future. Forecasts are always suspect, of course, but recent projections of ETI have proven to be relatively reliable guesstimates vs. the reported numbers that followed (shown by the red squares) and so the latest projections (light purple bars) provide additional support for cautious optimism.
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