Wednesday, May 18, 2016

Economic Data Surprise Index Shows Continued Weakness

Today we get another glimpse into the behind-the-scenes machinations of the “data dependent” Federal Open Market Committee (FOMC) with the release of the minutes from the April 26-27 meeting.

While the Fed has a dual mandate of maximum employment and price stability, lately there has been considerable discussion about the how much the Fed should let global considerations factor into Fed policy.  Clearly, the pace of economic growth in China or the stability of euro zone has a significant downstream effect on economic activity in the United States.  Additionally, with 48% of revenues from the S&P 500 companies coming from international markets, policy formulation in an increasingly interconnected global economy is becoming more complicated with each advance in technology, communications and logistics.

Given this backdrop, just how does the data look?  For the past seven years I have been publishing an economic data surprise index that aggregates U.S. economic data relative to consensus expectations across areas such as employment, the consumer, housing/construction, manufacturing and inflation.  The chart below aggregates data across all these areas and shows data peaking relative to expectations during October 2014.  Since that peak, however, economic data relative to expectations deteriorated sharply, falling to an all-time low during the middle of January 2016 that was matched again at the end of last month. 



[source(s):  VIX and More]

If the Fed is indeed data dependent, then there is no avoiding the conclusion that aggregate data relative to expectations has been a disaster for the past 1 ½ months.  There are some signs of stability forming in the current environment and clearly the strength of the dollar and the price of crude oil will have a great deal to say about economic data going forward.  Then again, international events such as the Brexit vote and the evolution of negative interest rate policies of central banks across the globe may trump all domestic U.S. economic data.

[Readers who are interested in more information on the component data included in this graphic and the methodology used are encouraged to check out the links below. For those seeking more details on the specific economic data releases which are part of my aggregate data calculations, check out Chart of the Week: The Year in Economic Data (2010).]


Related posts:




Disclosure(s): none

blog comments powered by Disqus
DISCLAIMER: "VIX®" is a trademark of Chicago Board Options Exchange, Incorporated. Chicago Board Options Exchange, Incorporated is not affiliated with this website or this website's owner's or operators. CBOE assumes no responsibility for the accuracy or completeness or any other aspect of any content posted on this website by its operator or any third party. All content on this site is provided for informational and entertainment purposes only and is not intended as advice to buy or sell any securities. Stocks are difficult to trade; options are even harder. When it comes to VIX derivatives, don't fall into the trap of thinking that just because you can ride a horse, you can ride an alligator. Please do your own homework and accept full responsibility for any investment decisions you make. No content on this site can be used for commercial purposes without the prior written permission of the author. Copyright © 2007-2023 Bill Luby. All rights reserved.
 
Web Analytics