Economic Outlook 2015, Part 2: U.S. Economy Is Strong And Gaining Momentum

This post contains Part 2 of my 3-part Economic Outlook for 2015 (read part 1 here). In this article we'll examine The Conference Board's 4 Coincident Economic Indicators, which measure the strength of current economic activity. My rankings for each indicator are shown below (-1, 0 or +1), along with the equally-weighted and Conference Board-weighted scores of +50% and +67%, respectively (based on a scale ranging from -100% to +100%). The coincident indicators show that the U.S. economy is currently strong and gaining momentum heading into the turn of the year.

Coincident-Scorecard

The first coincident indicator is Retail and Food Service Sales, heavily weighted at 53.2% (this is a substitution for The Conference Board's Manufacturing and Trade Sales indicator).  Total sales have risen steadily since the last recession, earning this indicator a score of +1. S&P's Capital IQ reported that in the period ending with Q3-2014, sales grew at an annual rate of 2.9% and EPS increased a red-hot 9.2%.

CO-1-Total-Sales

The second coincident indicator is Total Nonfarm Payrolls (weight = 25.9%). The U.S. economy is producing new jobs, with total finally exceeding its level from the mid-2000s. The series is clearly in a long-term uptrend.

CO-2-Nonfarm-Payrolls

There are several reasons to be a bit cautious about the Nonfarm Payrolls data, however. First reason: the 7 million workers who are working part-time but would prefer to be working full-time:

Part-Time-Employment-Economic-Reasons

The second reason is that while payrolls are growing briskly, the pace of new hiring is more sluggish:

CO-2-A-Payrolls-Hires

An unusually low level of voluntary terminations accounts for the slower pace of new hiring.  I will therefore rate the Total Nonfarm Payrolls indicator zero — the uptrend is positive, but the mix of full- and part-time jobs being created and the sluggish rate of new hiring tempers my enthusiasm.

The third coincident indicator is Personal Less Transfer Payments (weight = 13.6%). Personal income in the U.S. is at an all-time high, which is definitely a positive. Examining the next graph below, however . . .

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