Bi-Weekly Economic Review: Ignore The Idiot

Jon Economy

This is a syndicated repost courtesy of Alhambra Investments. To view original, click here. Reposted with permission.
Of the economic releases of the past two weeks the one that got the most attention was the employment report. That report is seen by many market analysts as one of the most important and of course the Fed puts a lot of emphasis on it so the press spends an inordinate amount of time dissecting it. I don’t waste much time on it myself because it is subject to large revisions and has little predictive capability. In fact, about the only thing about the report that has any relevance is the sign – as in negative or positive. The magnitude really doesn’t matter much. So, just so I don’t upset any conventions let me state that the employment report released since my last update was positive. I think. How positive? I’ll let you know in a year or so when it is fully revised. Besides it was not the most important report of the last two weeks by a long shot.
I don’t look at the incoming data the way most people do. I don’t pay a lot of attention to the headlines for most reports because I don’t think it really tells you very much. If your reason for monitoring the economy is to, hopefully, have some warning of recession then watching the incoming reports probably won’t do you much good. There are very few individual reports that are highly correlated with the business cycle. And each cycle is a bit different so different metrics become more important. Rather than try to figure all that out, we use market indicators that have proven useful no matter the nature of the cycle. The yield curve and credit spreads tell you pretty much all you need to know. The Chicago Fed National Activity Index, a composite of 85 other indicators, gives a great overall view of the economy and also has a good track record for predicting recession. Watch those three things, ignore the rest and you’ll be way ahead of most investors.

This post was published at Wall Street Examiner by Joseph Y. Calhoun ‘ August 14, 2017.