Overlooked Indexes May Send Encouraging Signals

Overlooked Indexes May Send Encouraging Signals

almost 4 years ago2 mins

A new “Weekly Economic Index” (WEI) recently introduced by the US Federal Reserve could help improve investors’ analytical abilities. Taken in conjunction with another little-known measure of raw material prices, it may also suggest signs of green shoots for global economic growth… 🌱

What does this mean?

Cooked up by the Federal Reserve’s New York branch in recent weeks, the WEI aims to offer a much more real-time snapshot of US economic activity than existing indicators, based on a broad bunch of data sources.

While new, the index’s underlying data goes back to 2008 – thereby enabling interesting comparisons between the last financial and current coronavirus crises. Between 2008 and 2009, the WEI bottomed out at -4%, remaining negative for 61 weeks. Here in 2020, meanwhile, the index is currently showing a 12% fall compared to a year ago after 7 weeks in negative territory.

Source: Federal Reserve Bank of New York
Source: Federal Reserve Bank of New York

Still, according to WEI analysis from major hedge fund Man Group this week, a “V-shaped” economic recovery would lead to average US company earnings only declining 22% this year – much less than in 2008 🤞

Why should I care?

The V hasn’t turned up just yet, sadly: the latest update to the WEI on Tuesday reversed its previously positive moves, thanks to slower retail sales and steel production.

But while US activity is key to the wider global economy, an obscure worldwide measure may provide some grounds for optimism. Man Group also points out that the CRB RINDindex – which tracks the non-speculative prices of a range of raw materials, from rubber to scrap metal – has risen recently. That might suggest supply chain disruption; but it could also be an early sign of industrial demand for commodities, and therefore economic activity, beginning to pick up.

Source: Man Group, Bloomberg
Source: Man Group, Bloomberg

As the chart above shows, the RIND index’s moves have previously foreshadowed both rises and falls in stock prices. Whether the former follows remains to be seen – but in any case, both the RIND and the WEI demonstrating the importance of drawing on up-to-the-minute information in a rapidly developing crisis… ⏪

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