AD Data: Leading Economic Index + RealVision Interview

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Leading economic indicators has been an instrumental data line to track, especially with the last 7 economic cycles.

From The Conference Board:  https://www.conference-board.org/data/bcicountry.cfm?cid=1

Leading Economic Index Factor
1 Average weekly hours, manufacturing 0.2796
2 Average weekly initial claims for unemployment insurance 0.0325
3 Manufacturers’ new orders, consumer goods and materials 0.0838
4 ISM® new orders index 0.1568
5 Manufacturers’ new orders, nondefense capital goods excl.
aircraft 0.0411
6 Building permits, new private housing units 0.0292
7 Stock prices, 500 common stocks 0.0394
8 Leading Credit Index™ 0.0820
9 Interest rate spread, 10-year Treasury bonds less federal funds 0.1139
10 Avg. consumer expectations for business conditions 0.1417

It’s one of my 6 recession red flags that I have. However, the velocity of the virus and government protocols for lockdowns and social distancing has been faster than most of the monthly economic data to catch up with.

In fact, it’s such a historic drop in the economy that a lot of economic charts look like waterfall dives or parabolic spikes.

Before the year started, only 3 of my 6 recession flags were up.

1. Federal reserves started the rate hike process

2. The unemployment rate gets down to a satisfied %, for me its was 4.9% 

3. The inverted yield curve 

At the end of 2017, my forecast was for yields to inverted in 2018 and that it would also be the longest time from the first inversion to recession ever. I truly believed we inverted the yield in December of 2018.

The last 3 were

4. Housing Starts fall into a recession 

February data showed near 40% rate of growth year over year, and even the most recent report still showed year over year growth in permits and starts.

Housing starts are too slow to catch up to lockdown protocols. On March 12th, 2020, the recession started. That was the last day of positive jobless claims, and the first day the government announced that gatherings of over 50 people should be avoided.

From Doug Short:
https://www.advisorperspectives.com/dshort/updates/2020/04/16/new-residential-housing-starts-down-in-march

April Housing Starts vs pop

5. Leading economic indicators fall 4-6 months straight before a recession 

LEI fell hard today but again too slow to catch up to lockdown protocols. The most significant drop in its 60-year history on a month to month basis. Here is a historical look at the Leading Economic Index. As we can see, historically, this index falls into a recession. During the Housing Bubble, this index raised a red flag in 2006/2007 before the Great Recession started.

From Doug Short:
https://www.advisorperspectives.com/dshort/updates/2020/04/17/conference-board-leading-economic-index-sees-largest-decline-in-its-history

April LEI
April 2020 LEI 12 month

6. Find the over-investment sector in the economy that can create a supply spike due to a lack of demand. 

With lockdown protocols, the majority of the economy has overproduced goods and services. We see the lack of demand shocks as over 22,000,000 jobless claims just occurred in weeks.

416 Jobless 2

The reason why I am splitting my recent economic work into essential stages is to show how important it is to be mindful of global pandemic plagues in the future.

BC ( Before Coronavirus) 

As I show here in this article not only was the BC data expansionary, the data lines together were positively rising, especially the U.S. housing market

2020 Economic Data Before Coronavirus 

https://loganmohtashami.com/2020/04/12/2020-economic-data-before-coronavirus-bc/

AD ( After the Disease) 

A lot of economic data are either negative waterfall charts or parabolic spikes in the wrong way.

AB ( America is Back) 

Recently for Housing Wire, I wrote 5 things to look for in a high-velocity economic data covid19 recession.

5 indicators that will show when the housing market is rebounding from COVID-19

Here in this interview on Real Vision, I explained in detail the state of the housing and mortgage market.

https://www.realvision.com/another-great-mortgage-meltdown

Going out in the future, we have to not only be mindful of global pandemics creating shutdown protocols. We have to be aware that until there is a vaccine for Covid19 that the government can put restrictions on the economy to stop the spread. So, even if we open the economy in the upcoming weeks or months, we know how fast lockdown protocols can shut an economy off in days, not months.

Logan Mohtashami is a financial writer and blogger covering the U.S. economy with a specialization in the housing market. Logan Mohtashami is a senior loan officer at AMC Lending Group, which has been providing mortgage services for California residents since 1987. Logan also tracks all economic data daily on his Facebook page https://www.facebook.com/Logan.Mohtashami and is a contributor for HousingWire.