U.S. Economic Profile: Still Biased Toward Expansion

Worries about the future still permeate the macro climate, but the numbers published for January so far continue to look encouraging for expecting slow growth. Eight of the 14 indicators that comprise The Capital Spectator Economic Trend (CS-ETI) and Momentum (CS-EMI) indices are positive. The economy, in short, is still biased toward expansion, based on what we know at the moment from the perspective of a broad measure of economic activity.

Here's how the individual indicators stack up in recent history to date:


Reviewing the data through the lens of a diffusion index (CS-ETI), and measuring the median monthly changes (CS-EMI), suggests that recession risk remains low. The danger zones for CS-ETI is 50%, and 0% for CS-EMI. In both cases, however, the current readings for these indices are at comfortable margins over their respective danger zones, as of last month.

Translating CS-ETI's values into recession-risk probabilities via a probit model also tells us that the economy remained biased toward growth through last month. A similar profile emerges for CS-EMI after crunching the numbers in a probit model.

Using an econometric tool to estimate the missing data points for January, and projecting numbers for February, suggests that CS-ETI will remain at levels associated with growth for the immediate future.

Overall, the numbers continue to tell us that recession risk appears low. Incoming data may indicate otherwise, but we already have a clue that one of the still-missing inputs for last month—real retail sales—is likely to show up in the plus column once it's updated later this week. We already know that nominal retail sales continued to trend positive through last month. Once the consumer price index for January is released on Thursday, real retail sales can be calculated. Short of an unexpected surge in inflation for last month, real retail sales are likely to remain a positive contributor for January.